Official China Discussion Thread

President Donald Trump’s next move in an increasingly fraught trade war with China could be one for the history books, literally. The Trump administration has been studying the unlikely prospect of reviving century-old claims on Chinese bonds sold before the founding of the communist People’s Republic.

The defaulted China bonds can be found in the attics and basements of thousands of Americans, or on EBay, where the certificates sell as collectibles for as little as a few hundred dollars each. The PRC, which succeeded the Republic of China after it replaced the imperial dynasty, has never recognized the debt, though that hasn’t stopped decades of attempts to collect payment on it.

Now, with Trump ratcheting up the trade rhetoric with China, holders of the antiquarian bonds are hoping he’ll press their case, even as other parts of the U.S. government are accusing people of fraudulently selling the same paper.

Perhaps the only thing more peculiar than the story of the Chinese debt and the unlikely bid to seek payment on it, is the cast of characters drawn into its orbit. President Trump, U.S. Treasury Secretary Steven Mnuchin, and U.S. Commerce Secretary Wilbur Ross have met with bondholders and their representatives. Kirbyjon Caldwell, pastor of a Texas megachurch and spiritual adviser to George W. Bush, has been charged by the U.S securities regulator for selling the debt to elderly retirees. (Caldwell has pleaded innocent and maintains that the bonds are legitimate.)

“With President Trump, it’s a whole new ballgame,” says Jonna Bianco, a Tennessee cattle rancher who leads a group representing pre-revolutionary China bondholders and who has met with the president. “He’s an ‘America First' person. God bless him.”

The Hukuang Railway bond is a thing of beauty. Printed with an ornate border and carrying a large chop, the debt was sold in 1911 to help fund construction of a rail line stretching from Hankou to Szechuan.

The U.S. once referred to the money that flowed into China at the turn of the 20th century as “dollar diplomacy”—a way of building relations with the country (and its massive untapped market) by helping it industrialize. The Chinese have another term for it: For them it fits squarely into China’s “Hundred Years of Humiliation,” when the Middle Kingdom was forced to agree to unfair foreign control.

For Trump, the bonds could be something else: leverage in his fight with China. That’s what Bianco, who co-founded the American Bondholders Foundation in 2001 to represent holders of the debt, is hoping for.

Bianco says she’s spent years researching China’s legal obligations and recruiting high-profile proponents to the ABF team, including Bill Bennett, who was U.S. Secretary of Education under Ronald Reagan; Brian Kennedy, senior fellow at the Claremont Institute; and Michael Socarras, Bush’s nominee for Air Force general counsel. By Bianco’s reckoning, China owes more than $1 trillion on the defaulted debt, once adjusted for inflation, interest, and other damages—a sum roughly equivalent to China’s holdings of U.S. Treasuries.

“What’s wrong with paying China with their own paper?” says Bianco.

She met with Trump at his sprawling golf course in Bedminister, N.J., last August, in an encounter she describes as “wonderful.” Since then she’s met with Mnuchin, though she won’t reveal what was discussed. ABF reps, including Bennett, Kennedy, and Socarras, met with Commerce Secretary Ross in April, Bianco says.

People familiar with the Treasury Department say the China bonds have been studied, but ABF’s suggestions—including the possibility of selling the defaulted debt to the U.S. government to then exchange with China—aren’t legally viable. Spokespeople for Treasury and Commerce declined to comment. People familiar with the views of Chinese officials say they’re aware of the meetings, but they don’t think the claims can be revived.

At issue is a statute of limitations that has long run its course and the fuzzy legal obligations of governments that inherit their predecessor’s debts following civil upheavals. In one of the most famous cases, the Soviet Union repudiated bonds sold under the Tsar, inflicting losses on thousands of investors who had snapped up the paper. Still, most agree that as a legal principle, political regimes inherit their predecessors’ debt; most governments choose to honor old bonds, in part because they don’t want to alienate investors who might buy new ones.

“I think everyone who works for Trump at the Treasury Department thinks this is loony,” says Mitu Gulati, law professor at Duke University and a sovereign-debt restructuring expert. “But I can’t help but be tickled pink, because at a legal level these are perfectly valid debts. However, you’ve got to get a really clever lawyer to activate them.”

Clever lawyers have tried before. The closest anyone got to wringing payment out of China was a class action suit brought by bondholders in 1979 that managed to bring the PRC to court to defend itself for the first time. Gene Theroux, formerly senior counsel at Baker & McKenzie LLP, helped represent the Chinese government in court.

Theroux, now retired, remembers the landmark case well. “The requests of us as lawyers were occasionally unusual,” he says, including China nixing any citation of previous cases with “Republic of China” in the title, given its refusal to recognize the regime under its “One China” policy. (Eventually, Baker & McKenzie resolved the problem by citing old cases as “Republic of China [so-called].”)

The suit was thrown out on the basis that the 1976 Foreign Sovereign Immunities Act, which allows U.S. courts to hear cases against foreign governments for commercial claims, could not be retroactively applied to bonds issued at the turn of the century.

Since then, a 2004 Supreme Court decision ruled that the FSIA could apply retroactively in a case immortalized in the movie Woman in Gold. The ruling paved the way for Maria Altmann to reclaim paintings by the famous Austrian artist Gustav Klimt decades after they’d been seized by the Nazis.

That still leaves the problem of reactivating modern legal claims on debt that is now decades old. Gulati argues that this could perhaps be done—for instance, by arguing that China making payments on modern bonds violates pari passi (equal payment) clauses embedded in the historic debt. Such clauses were successfully used by hedge funds seeking payment from Argentina a few years ago. It’s a legal long shot, but one that Gulati has assigned to his law students as a theoretical exercise.

The U.S. Securities and Exchange Commission is studying the debt, too. In a 2018 complaint against Pastor Caldwell and a self-described financial planner named Gregory Alan Smith, the SEC accused the pair of raising at least $3.4 million by persuading 29 investors to buy the pre-revolutionary bonds. Some of the buyers, mostly elderly retirees, liquidated their annuities to invest, the SEC said.

Messages left for Caldwell’s lawyer, Dan Cogdell, weren’t returned. In a press conference in March, Cogdell said the charges against his client were “false.” Caldwell, who was educated at Wharton before working as a bond salesman at First Boston and going on to officiate at Jenna Bush’s wedding, said the bonds are “legitimate” and has returned money to investors at their request. Smith entered a plea agreement to the charges last month.

“Defendants falsely represented to these investors that the bonds were safe, risk-free, worth tens, if not hundreds, of millions of dollars, and could be sold to third parties,” the SEC said in its complaint. “In reality, the bonds were mere collectible memorabilia with no investment value.”

Russian Defense Minister Sergei Shoigu and a senior Chinese military official have signed a set of documents on military-technical cooperation.

Russia's Defense Ministry says Shoigu and the Vice Chairman of China's Central Military Commission, Zhang Youxia, signed the documents in Moscow on Wednesday.

The ministry quoted Shoigu as saying China is Russia's key strategic partner, and the two countries are entering a new stage of development.

Zhang accused the United States of exerting strategic pressure on China and Russia. He said China has always put priority on Russia in its diplomacy, and it is ready to cooperate to achieve a new breakthrough. The Chinese and Russian militaries held major drills in Russia's Far East last September. In July, they also conducted a joint air patrol over the Sea of Japan, including airspace over the Takeshima Islands. South Korea controls the islands. Japan claims them.

Russia is also emphasizing economic ties with Japan and India. The Japanese and Indian leaders were invited to an international economic forum that opened in the Russian Far East on Wednesday.

A rights activist in Kazakhstan who faced seven years imprisonment over his outspoken opposition to neighbouring China was unexpectedly freed on Friday as public and international pressure over his case mounted.

Serikjan Bilash, whose activism in defence of Muslim and Turkic minorities in Xinjiang earned him global media attention, said he struck a plea bargain with the court that allowed him freedom but will end his activism.

“I had to end my activism against China. It was that or seven years in jail. I had no choice,” Bilash said at a restaurant where he held a celebratory midnight feast with his family and about 40 supporters.

Bilash agreed to accept guilt over inter-ethnic incitement charges triggered by his call for an “information Jihad” against the Chinese authorities over their policies in Xinjiang earlier this year.

He will also be unable to leave the city of Almaty – Kazakhstan’s largest – for the next three months under the terms of his deal, he said.

“I had to do this for my family and my children,” he told said as supporters in high spirits drank tea and chowed down on a traditional meat-and-potato dish.

His release capped a dramatic night in Almaty, where some 200 hundred supporters surrounded the court where Bilash appeared and chanted for his freedom.

His lawyer Aiman Umarova had sounded the alarm earlier in the evening as she was unable to make contact with Bilash who had arrived at the courthouse before her and was immediately taken in by authorities.

Umarova refused to sign the plea bargain, insisting on her client’s innocence, meaning Bilash had to find another lawyer to sign off on the deal.

“I refuse to put my name to any deal that was signed under pressure,” Umarova said.

Bilash had previously been held under house arrest after being detained and flown to the capital Nur-Sultan in March. Critics connected his arrest to pressure from Kazakhstan’s economically powerful neighbour.

The Communist Party’s dragnet in Xinjiang has swept up an estimated one million ethnic Uygurs and other mostly Muslim minorities into “vocational education centres” that numerous studies and reports say are harsh internment camps. Trump hears ‘tough’ Xinjiang camp details from detained Tohti’s daughter

With a population of at least 1.5 million, Kazakhs are the second largest Turkic group in Xinjiang after the Uygurs.

In July a court in Nur-Sultan ruled to transfer his case to Almaty, where the family of Bilash – an ethnic Kazakh who was born in Xinjiang but obtained Kazakh citizenship as an adult – are based.

Fiery orator Bilash had told the court Beijing was perpetrating a “genocide” against Turkic minorities in Xinjiang while “Chinese soft power” was working to “occupy our minds” in the Central Asian state.

Kazakhs living in Kazakhstan have used Bilash’s informal rights group Atajurt to appeal to the Kazakh government to lobby China for their relatives’ release.

Some supporters gathered outside the courthouse sporting T-shirts advertising a bid to nominate Bilash for the Nobel Peace Prize were former residents of Beijing’s notorious centres in the region.

Earlier this month, a man who returned to Kazakhstan after spending a year-and-a-half trapped in Xinjiang said he believed Bilash’s activism had forced his release.

“Without Serikjan and Atajurt, I would not be here,” said Tursynbek Kabiuly, who had his passport confiscated and was interrogated for six consecutive days in a jail after crossing into China to attend a relative’s funeral.

Kazakhstan’s foreign ministry has engaged in quiet diplomacy with major trade partner China on Xinjiang but has been reluctant to promote its efforts given sensitivities over Xinjiang.

Last year the ministry said China had allowed 2,500 ethnic Kazakhs to leave the country and enter Kazakhstan “as a kind gesture” but refused requests for further information.

Kazakhstan, an oil-rich, landlocked country of 18 million people has positioned itself as the “buckle” in President Xi Jinping’s flagship belt and road international infrastructure drive.

Presidents before Trump naively believed that China would abide by international standards of behavior if it were granted access to institutions like the World Trade Organization and generally treated as a "normal" country. But that path proved mistaken, and Beijing ignored Western pressure on matters from human rights to the widespread theft of intellectual property.

Trump, whatever his flaws, grasps this reality. Unlike many of his predecessors in the White House, Trump appears to understand innately the hooliganism and brutality at the heart of the CCP. He comprehends that - whether in the realm of trade, diplomacy or international order - dictatorships do not commonly play by the rules of democratic nations. While past administrations have curried favor with the CCP ("appeasement" is not too strong a word), Trump has made excising the party's growing corrosion of U.S. society - from business and the media to education and politics - a focus.

For decades, U.S. presidents have allowed themselves to be taken in by China. Think of Richard Nixon marveling at staged supermarkets and shoppers in Beijing, and paving the way for the severing of ties with the Republic of China (Taiwan) in favor of the communist regime. Or Bill Clinton, after talking tough, declining to make "most favored nation" status for China conditional on human rights reviews, effectively eliminating any leverage the United States had over China with respect to fair trade, not to mention rights. As China's entrance into the World Trade Organization moved toward reality, in 2000, Clinton described it as "the most significant opportunity that we have had to create positive change in China since the 1970s."

He said there would be no downsides to freer trade: It was "the equivalent of a one-way street." Following the attacks of 9/11, George W. Bush turned a blind eye when Beijing used the U.S. war on terror as cover for persecuting ethnic minorities; Barack Obama repeatedly shied away from mentioning human rights to CCP officials, notably during a visit in 2009.

Some contend, with justification, that Trump has not made democracy and freedom central to his foreign policy. But where China is concerned, dissidents, both within China and in the diaspora, note and appreciate what he is doing. Most activists agree that civilized talks behind closed doors have never elicited concessions from the CCP. The only way to make progress is by landing pointed blows, particularly against the party elites and their bank accounts (which are reliant on party-owned, nepotistic, monopolist companies).

We have to be clear about our values. China is a deep-pocketed, rapacious regime that poses a significant threat not just to American interests but to the entire civilized world. Yet after decades of empty talk about nudging China toward reform, we're at a point where it is American companies, news outlets and universities that feel pressured to play by Beijing's rules or risk losing access to its markets and resources.

Trump, with an admittedly unorthodox style, is trying to break down the systems, and the concessions, that have allowed the CCP to operate unchecked for too long. He deserves credit, not criticism, for saying: Enough.

China expands its crackdown on Muslims beyond Xinjiang, Hui people are the newest targets.

Nah, Xi seems to be a case of someone who wants to enforce homogeny in China because he wants to be the Top Power and he feels that he need a homogenous national identity to do so.

However, readers should note that Xi offers very little in the way of classical Marxist exegesis to justify his claim that “an economic system in which publicly owned enterprises are the principle part” and the “political system of the National People’s Congress” are the natural extension of Marxist theory to current world conditions. The claim is asserted more than proven; one suspects he would rather not have the readers of Qiushi thinking too hard about the details of classical Marxist texts.

More significant than Xi’s use of Marxist theory to justify any particular policy is his conviction that he leads an ideological-political system distinct from that of the capitalist world. Threats to this system are not framed in military or economic terms, but ideological ones. The Soviet Union fell, he declares, “because ideological competition is fierce.” If the faith of its cadres remains fervent, Xi believes his Party will succeed where the Soviet Union could not.