Written by Jason Cardiff
For more than a century, American citizens, institutions, and state governments have held gold-backed sovereign bonds issued by the government of China—bonds that many experts argue are still valid under international and U.S. law. These bonds, backed by the full faith and credit of the then-Chinese government and indexed to the price of gold, represent obligations incurred before the rise of the People’s Republic of China (PRC) in 1949. While precise valuations vary, some estimates place the adjusted value of these obligations in the range of hundreds of billions to over one trillion dollars depending on the calculation method and terms.
Despite this, the PRC has consistently refused to honor these debts, citing the 1949 change in government as justification. However, many legal scholars maintain that sovereign obligations do not simply disappear with a regime change. The issue remains a contentious and unresolved matter of international law and diplomacy.
These Are Not "Ancient Artifacts"—They Remain a Legal and Diplomatic Issue
From the late 19th century through the early 20th century, China issued bonds that were legally structured under Western frameworks, including New York and English law. Many of these bonds were sold to finance infrastructure projects and were marketed heavily to U.S. investors. The instruments included terms explicitly linking repayment to gold, which has appreciated significantly over time.
Although the PRC asserts it is not liable for debts incurred by prior regimes, the doctrine of state succession in international law generally supports the continuity of sovereign obligations when the state itself—not just the government—remains the international actor. Nonetheless, there is no binding international ruling compelling China to repay these specific bonds, and past U.S. court cases have not succeeded due to sovereign immunity and the political question doctrine.
International Legal Norms and Precedents
International law, particularly the doctrine of state succession, supports the principle that a change in government does not nullify a state's financial obligations. Successor states often inherit both assets and liabilities. However, there is no universal enforcement mechanism, and historical precedents vary. For example, post-revolutionary Russia repudiated Tsarist debts, while other states such as Germany and South Africa have, at times, chosen to honor historical obligations to reinforce international credibility.
The PRC has inherited major privileges from its predecessors, including the UN Security Council seat and control of Chinese foreign assets. Critics argue that China cannot claim continuity in matters of state benefit while rejecting it in matters of debt repayment. Still, there has been no international consensus or binding agreement that forces China to repay these pre-1949 bondholders.
An Uneven Playing Field
China currently holds around $759 billion in U.S. Treasury securities, according to recent U.S. Treasury reports. It expects—and receives—full repayment with interest. Meanwhile, bondholders of China's historical sovereign debt have no recourse. This double standard has drawn criticism from legal advocates and former U.S. officials who argue that the United States should explore recognition of these bonds and use them as leverage in broader financial negotiations.
While the PRC views the matter as closed, advocates maintain that the issue remains a matter of legal equity and moral responsibility. The gap between China's insistence on repayment of U.S. debt and its refusal to pay its own historic obligations raises serious questions about fairness in global finance.
Pathways Forward
Although the legal enforcement of these bonds is severely limited, several strategies remain available:
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Diplomatic channels, where the U.S. government could engage China in discussions tied to broader trade or financial frameworks;
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Legislative action, authorizing American bondholders to assert claims where feasible;
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Symbolic recognition, which could increase political pressure and raise awareness about the issue internationally.
This is not merely a historical grievance—it is a live question of financial responsibility in an interconnected global economy. If sovereign debt can be discarded whenever politically inconvenient, the reliability of global finance itself is threatened.
The time may have come for the U.S. government to take this issue seriously—not to provoke conflict, but to uphold the principle that a sovereign obligation is a promise that transcends political change. Accountability must apply equally to all nations that operate in the global financial system.
