Xu Shanda, former deputy-director of the State Administration of Taxation, has put forward suggestions that China may aid other countries by establishing funds and offering loans with its huge forex reserve, and this will help to increase China's external demand.
"The scheme is inspired by the US's post-WWII "Marshall Plan," but they are very different. First, politically we are against colonialism and hegemonism. Secondly, we shall never rob other countries' resources. Instead we'll share development outcome with the countries we help," explained Xu Shanda.
The Marshall Plan, named after then-secretary of State George C. Marshall, was launched in 1947 and within four years doled out about $13 billion, a simply enormous sum in those days, to countries in Western Europe to help them stabilize their economies in the aftermath of the war's devastation. The plan also helped to solve the production capacity surplus in the US and contributed to the establishment of Bretton Wood System.
Xu Shanda's Chinese "Marshall Plan" also aims to solve a production capacity surplus, that in China.
Mr. Xu thinks the rate of consumption of Chinese residents has long been declining, whether the economy is hot or cold. This means the lack of internal demand is not caused by the economic circle, so the current policy to resist the economic circle will not solve the problem. "Lack of internal demand did not begin with the financial crisis. Our internal demand has long been insufficient compared with production capacity," he says.
Xu has long supported a "development plan for a harmonious world." In detail, he suggests that a special fund for international aid and cooperation be established. Loans should be granted in the name of the Chinese government, consisting of a certain amount in forex and the remainder in RMB. These funds should be mainly invested in the aided country's infrastructure construction, and the country would be expected to repay the loans with national credit or profit made from the aid project.
Xu believes the exported labor force and the production and living materials stimulated by the government's loans can completely solve China's production capacity surplus. The plan has the added advantage of helping to make RMB an internal settlement currency.
Developing countries are eager for investment from overseas. According to UNCTAD and IMF, developed countries' investment in developing countries is down 25%. Although the rich countries have loosened monetary policy, it is increasingly hard for developing countries to get capital from them. African countries are in great need of Chinese capital and Chinese mechanical products, while China's demand for bulk commodities would help maintain price stability.
　　
China is currently conducting some foreign aid projects. In 2008, however, foreign aid accounted for only 0.04% of China's GDP, while in the US this number is 0.4%. Promised foreign aid of European countries totals 0.7%.
Many analysts close to the decision-making circle think China needs to keep only $600 billion to $800 billion in forex reserves and can transform the rest of its current stash of about $2 trillion into non-reserve forex assets, some of which can be used to improve China's international influence and external environment.
But many experts worry that a Chinese "Marshall Plan" would trigger hostility among traditional donor states in Europe. Some countries see China as a developing new colonist. Time, effort and care will be necessary to combat this view.