In chess, new context empowers previously redundant pieces. And one such piece could turn out to be some $1tn-plus (when compound interest is accounted for) of yet-to-be-cancelled pre-People’s Republic of China debt ranging from the Hukuang Railways Sinking Fund Gold Loan of 1911 and the Reorganisation Gold Loan of 1913, to the so-called Liberty Bonds of 1937.
Long forgotten, these bearer bonds — denominated in sterling, Swiss francs, Russian roubles, Deutsche marks or US dollars — exist mostly in people’s private collections or attics. The most relevant were issued either by the former Republic of China or the preceding Imperial Chinese state to raise money for big development and infrastructure projects. Some were secured against revenues from Chinese natural assets like salt resources.
When the People’s Republic of China was founded in 1949, its leaders broke with the tradition of maintaining the debt obligations of previous regimes. But they never formally de-recognised the debt. The bonds instead went into default, taking on mainly antique value.
Mitu Gulati, a professor of law at Duke University who has been studying the bonds, believes a legal argument could be made to revive some of the claims. Some of the old obligations include legal clauses that suggest new Chinese debt cannot be issued until old debt has been dealt with.
The 1912 and 1913 issues continued to trade speculatively on the London Stock Exchange until 1987, when some investor bets appeared to pay off…
George LaBarre, a specialist vintage financial paper dealer, says the price of the 1911 Hukuang bond has gone from $75-100 to about $450.
Here is more from the FT, via Malinga Fernando.