Chinese "soveriegn obligations"

Frank Gaffney:

Communist China has done it again. Desperate for new sources of energy, the Chinese are moving into an oil-rich nation eschewed by others.

In this case, however, the country in question is not a state-sponsor of terror or other pariah state. Rather, it is Iraq, a country the United States has gone to great lengths to make a member in good standing of the Free World — free, among other things, of the influence of those like China that had close ties to Saddam Hussein.

Yet now, according to the Financial Times, the Iraqi government last Friday "revived a contract signed by the Saddam Hussein administration allowing a state-owned Chinese oil company to develop an Iraqi oil field."

The deal to develop the al-Ahdab field in Iraq was signed with China National Petroleum Corporation (CNPC) in 1997 and was valued at the time at $1.2 billion. What is more, the FT reported Iraqi Oil Minister Hussein al-Shahristani announced "Baghdad welcomed Chinese oil company bids for any other contract in the country through a 'fair and transparent bidding process' to be laid out in the new oil law under discussion in Iraq's parliament."

Part of the impetus behind the free Iraqi government embracing CNPC — China's largest state-owned oil company and an instrument for its partnerships with the world's most odious regimes — is a harsh reality: China is one of all too few investors who appreciate the strategic opportunities inherent in securing a foothold in Iraq today and are able to accept and mitigate the risks associated with doing business there.

Another consideration has to do with the matter of Iraqi sovereign debt to Communist China dating from Saddam Hussein's time and estimated to be worth as much as $10 billion. China has insisted the successor government in Baghdad is responsible for its predecessor's liabilities.

The Financial Times noted Friday a seeming breakthrough occurred during a visit to China last month by Iraq's president, Jalal Talabani. Beijing announced "a 'large margin' of Iraqi debt would be canceled, although no specific figures were released." As communists are fond of saying, this is hardly a coincidence, comrade. China used the leverage of a promise to forgive what is, as a practical matter, uncollectible Iraqi debt to secure renewed access to Iraqi oil.

There is a special irony to China's adamancy on the subject that successor governments are responsible for their predecessors' sovereign debts. After all, American and other investors are estimated to hold Chinese sovereign bonds issued by pre-communist regimes worth roughly $260 billion — bonds the People's Republic of China has, to date, refused to honor. While British holders of such Chinese bonds were given a discriminatory settlement back in 1987, their American counterparts have been left holding the bag.

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For those worried about China buying American debt instruments, which I am not, perhaps we should offer an exchange. We can forgive the old debt and they will forgive an equivalent amount of our current debt that they hold. Sounds fair to me.