By Yuan Jirong

The present discussion on China's adoption of a "Marshall Plan"has sparked widespread debate at home and abroad. As the financial crisis deepens, China should explore new opportunities to expand its global economic reach in accordance with the needs of its own development, and implementation of a "Chinese-style Marshall Plan"contributes to achieving this objective.

First, domestic demand could be stimulated by overseas needs. Justin Lin Yifu, World Bank Chief Economist and Senior Vice President, suggested that countries with high saving rates such as China, Japan together with the US, eurozone economies and oil-exporting nations, should invest a total of $2 trillion in low-income countries over the next five years. The money will come from donations instead of loans. According to Lin, the economic development of the underdeveloped nations will subsequently lead to their increased demands for goods, and ultimately more purchases from high-income countries. Given China's enormous foreign exchange reserves, a massive program modeled on the Marshall Plan serves to diversify the risks. While grants are not viable for China, we have the capability to provide loans to relieve the economic woes of the underdeveloped countries and to facilitate their economic recovery to purchase Chinese products.

Second, the program helps to mitigate the accompanying negative effect of China's stimulus package, namely excessive production capacity. Xu Shanda, former Deputy Director of the State Administration of Taxation, proposed to devise a "Marshall Plan"that has Chinese characteristics to offer assistance to emerging markets, thus effectively spurring overseas demand. China's introduction of the 4 trillion yuan ($586 billion) stimulus package, compounded with investments of local governments, could amount to 20 trillion yuan, which will probably cause a certain degree of excess capacity.

Third, the project will effectively diversify China's immense foreign exchange reserves. Data indicate that China's holdings of US government bonds will total $739 billion in 2009, making China the largest holder of US Treasury bonds. But US President Barack Obama initiated a huge economic stimulus plan, and the budget deficit soared accordingly. The Federal Reserve's balance sheet reached $3 trillion, and inflation is inevitable. In addition, the Federal Reserve in March announced it would spend $300 billion to buy US long-term bonds, which demonstrates that its financial institutions are plagued by a severe debt crisis. Worse still, where does the Federal Reserve's money come from? Undoubtedly, it will not convert the 8,200 tons of gold, critical for its survival, into dollars. Furthermore, the gold is only worth $270 billion at current price, inadequate to tide over the financial crisis. As a consequence, the Federal Reserve will inevitably print dollars to purchase securities and bonds. Therefore, it is indispensable for China to diversify its foreign reserves.

Fourth, the plan will lay a solid foundation for China's economic and strategic influence across the globe. The Marshall Plan functioned as a catalyst for the US establishment of the Atlantic Alliance and its leadership in the international community. China, despite having no intention to claim world supremacy, should adopt an international perspective in formulating its economic development policy with the gradual expansion of its export-oriented economy.

The success of a Chinese Marshall Plan requires thorough planning and careful selection of countries and regions that are most eligible to receive aid. China is also urging other countries to honor their commitments of aiding poor nations. Together with various currency commitments, China is making an important contribution to mitigate the devastating impact of the financial recession. If these actions of aiding and trading are well coordinated and promoted in a professional way, the combined influence and power would be much greater than simply giving out the money.

Multiple forms can be adopted for the implementation of the scheme. China can formulate a "Marshall Plan"by itself, or unite other countries to assist the economies most affected by the financial turmoil.

The author is a PhD at the Institute of American Studies, Chinese Academy of Social Sciences. This article was translated by Liu Dong

Illustration: Abdul Saeed Ala Atik