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Sino-U.S. Asset Freeze Issue Solved for Bilateral Financial Cooperation (1979)


 

In order to solve the asset freeze issue between China and the United States, from the early 1970s, Bank of China made a lot of joint efforts with relevant departments to establish working groups, carry out investigations and researches, obtain data and information and put forth solutions. However, no substantial breakthroughs were made as there were still some other problems in the China-U.S. relations.

The official establishment of Sino-U.S. diplomatic relations on January 1, 1979 ushered in a new era of the bilateral ties. On March 2, 1979, Blumenthal, U.S. Secretary of the Treasury, paid a visit to China and initialed an agreement to unfreeze the assets between China and United States. In the unfreezing negotiation, Bank of China also took a positive part. As approved by the State Council on April 20, 1979, the responsibilities for disposal of the private assets between China and United States were distributed as follows: the amounts payable to United States in USD would be listed in the national budget and spending plan for the same year by Ministry of Finance, while the recovery of the assets frozen by United States, the retrieval of funds as well as the handling after retrieval would be under the charge of Bank of China in collaboration with Ministry of Foreign Affairs.

On the eve of the day when China and U.S. were scheduled to sign the agreement, the U.S. side suddenly alleged that the Chinese assets frozen by U.S. were insufficient to cover the claims made by the owners of U.S. assets and required China to pay the difference of USD 50 million. In response to this situation, Bank of China, based on the information available, affirmed that the amounts of assets claimed by both parties were similar and, thus firmly believing that the amount due to China was sufficient to offset the amount receivable by U.S. For this reason, China suggested that, the frozen assets of China should be unfrozen by U.S. and be taken back by China at its own discretion.

After a series of assiduous efforts, China and U.S. finally signed an agreement regarding asset unfreezing on May 11, 1979. It was provided in the agreement that the asset claims made by U.S. and its nationals against China referred to their assets in China which were nationalized, expropriated, intervened and otherwise possessed by China from October 1, 1949 to the signature date of the agreement; that the asset claims made by China and its nationals against U.S. referred to the assets frozen by U.S. from December 12, 1950 to the signature date of the agreement; and that Chinese Government agreed to pay USD 80.5 million to U.S. Government as the full and final settlement of all the asset claims set forth in the agreement and U.S. Government agreed to unfreeze all of China's assets that had been frozen by U.S.

As far as China was concerned, it would be economically acceptable for it to recover more than USD 80.5 million out of the frozen assets. On September 9, 1979, the State Council authorized Bank of China to implement the order to recover China's assets frozen by US Government. On the same day, Bank of China made a public announcement, requiring all entities and individuals holding assets frozen by U.S. Government to register the information concerning the frozen assets promptly at their local or nearest branches of Bank of China. Meanwhile, Bank of China lost no time contacting and dunning U.S. side for payment by sending the authorized order issued by the State Council to foreign agency banks and American enterprises and organizations holding frozen Chinese assets, and requesting the agency banks to provide lists of frozen Chinese assets for the U.S. side to verify.

In order to protect the interests of Chinese creditors, Bank of China indicated to the U.S. side that, despite the fact that no interest would accrue on demand deposits in U.S., China's frozen funds had actually changed into long-term deposit, while American banks acquired generous profits by means of interest accrual during this period, for which reason China required American entities to compensate for the interests accrued from the assets frozen since 1950.

Bank of China encountered numerous problems in the process of recovery of frozen assets and allocation of the recovered assets to domestic individuals and entities, for example, the interest payable by nine American banks on China's deposits, the inconsistence between the figures of China's frozen assets provided by the U.S. side, as well as the impossibility to recover the amounts indicated by state governments of U.S. and so on, all calling for hard struggles in order to safeguard the legitimate interests of China to the maximum extent.

Through the concerted efforts of Bank of China as a whole, it managed to recover frozen assets of USD 112 million, outperforming the promised target of recovery undertaken to the State Council and thus safeguarding both the legitimate individual interests of asset owners and the national interests.

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