Xi Jingping said China would cancel debts to the world's least developed nations, including small island nations. China Has Forgiven Nearly $10 Billion In Debt. Cuba Accounts For Over Half. But China wasn't punishing, and is not in G7.
I ask in context of recent articles like "How to make China pay for COVID-19" by John Yoo BA Harvard (History), JD (Yale), Law Clerk, Justice Clarence Thomas, U.S. Supreme Court, 1994-95.
China’s expansion into foreign property renders it vulnerable. The United States could expropriate Chinese property in the United States. Conceivably, Washington could even cancel Chinese-held treasury debt and using the proceeds to create a trust fund that would compensate Americans harmed by the pandemic. It could claim that in cancelling Chinese holdings of U.S. Treasury debt, the United States is only recouping China’s international debt cancelled by the Chinese Communist Party when it seized power in 1949.
I have a simple, bold, and decisive step we can take: cancel all American debt held by the CPC, whether by the Chinese government or companies controlled by them. That is debt we can finance with someone else and use the money to give relief to Americans who need it and to bring manufacturing home.
But Ben White explained "Why we can't 'cancel' U.S. debt held by China"
Why we can’t “cancel” U.S. debt held by China — The Washington Post ran a story suggesting that President Donald Trump and some of his advisers want to retaliate against China over claims the Chinese withheld critical information about Covid-19. The story included this completely insane threat: “Some administration officials have also discussed having the United States cancel part of its debt obligations to China, two people with knowledge of internal conversations said.”
It should go without saying — but we suppose it has to be said — that any such move would essentially explode global financial markets. The Chinese own around $1 trillion in U.S. Treasury securities. They along with the Japanese and many other nations fund our debt and deficits. U.S. Treasury bills and the dollar underpin global financial markets. And the full faith and credit of the U.S. government to meet all its debt obligations is the main reason this is possible.
Any move to “cancel” debt held by China — i.e. default on it — would destroy the full faith and credit of the U.S., send U.S. interest rates soaring and could ignite a global financial catastrophe. So when MM asked top White House economic officials about the suggestion, they were lightning fast to deny it, replying within moments, which as any reporter knows is not always the case.