Does Beijing or Taipei owe the United States up to one trillion dollars? The Trump administration is reportedly mulling actions to get back the money loaned to the government of Imperial China more than 100 years ago.

Offsprings and representatives of the original holders in the US of the “antique China debt” – issued by the Qing dynasty government (1644-1911) to fund China’s railway construction less than a year before the last monarchy was toppled in the 1911 Revolution led by Sun Yat-sen – insist that it is incumbent upon Beijing to pay back the money long overdue under the principle of the succession of states, Bloomberg reported at the end of August.

The total size of the defaulted bonds to be repaid in line with their conditions, factoring in inflation and interest, is estimated to hit the one trillion dollar mark, roughly the equivalent to Beijing’s US treasuries holdings.

The money was raised 108 years ago to fund the construction of the Hukuang Railway, as part of north-south and east-west arteries linking the central province of Hunan to the southern trading hub of Canton, now Guangzhou.

It has been reported that Trump, US Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross – both leading negotiators in the drawn-out talks to resolve the fraught trade war with China – met with some bondholders and their representatives earlier this year. The bondholders urged the president not to let Beijing absolve itself of the obligation.

Tourists tour the Forbidden City in Beijing. The Qing dynasty was overthrown in the 1911 Revolution, the year the Republic of China was founded. Photo: Weibo

In response, Chinese state media, including Sina and Global Times, said that when the Communist republic was founded in October 1949, Mao Zedong ripped up all unfair treaties and bond and loan contracts from the Qing dynasty and subsequently the Republic of China (ROC) and that the People’s Republic of China (PRC) had no liability to pay back any debts in arrears when Chiang Kai-shek absconded to Taiwan with a bundle of loans that year.

Creditors seeking redress, said the newspapers, should look for repayment from the ROC government, implying that the government in Taipei should be the debtor.

But the American Bondholders Foundation, set up in 2001 to represent holders of pre-communist Chinese debts, said in a statement that the PRC dismissing its defaulted sovereign obligations as pre-1949 Qing or ROC debts contradicts Beijing’s own line, that it is the sole successor to the ROC’s sovereign right and status and the only legal government representing China.

A certificate of the Qing dynasty sovereign bond issued in 1911. Photo: Handout

Taiwan has also stressed that its law governing cross-strait relations stipulates that it will not honor any claim of any debts or bonds owed by the mainland or issued there prior to 1949, until after “the unification of both sides,” admitting that repaying the US$1 trillion debt could deplete the island’s coffers.

Some of the island’s lawmakers said that many of the old bonds were issued by the Qing dynasty and subsequently the Kuomintang party-controlled ROC government before its retreat to Taiwan in 1949, so why should the ruling Democratic Progressive Party be responsible for them, especially when the railway projects financed by these loans are all on the mainland?

They say Beijing which took over all these projects from the ROC after the mainland fell to Mao’s Red Army should therefore pay back the bonds, even though the bonds predate the founding of the PRC.

A similar case in recent history went in Beijing’s favor. In 1979 there was a class action suit brought by some of these bondholders that actually brought Beijing to a US court, but the case was thrown out on the basis that the 1976 Foreign Sovereign Immunities Act, which would allow US courts to hear cases against foreign governments for commercial claims, could not be retroactively applied to bonds issued at the turn of the 20th century.