China Considers Merits of Developing its own "Marshall Plan"

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Global Trade

Where the Manufacturing PMI Purchasing Managers Index hovers just above the 50 median line in parts of America, showing meager growth (52.9) and just below the line in Europe (47.9) and the UK, China’s rose for the sixth straight month in a row to 54 according to the Telegraph newspaper. To the surprise of many economists, China’s exports appear to be picking up at the same time as domestic consumption has remained strong in spite of a drop in bank lending.

Maybe in an effort to keep the ball rolling, the Chinese are rumored to be considering a modern form of the Marshall Plan the European Recovery Program masterminded by a US administration in 1947 and named after the Secretary of State at the time, George Marshall. The Marshall Plan was significant in helping a war ravaged Europe back on its feet and in laying the foundations for the current EEC by breaking down tariff barriers among member countries of the Organization of European Economic Cooperation. (okay, before anyone writes in I know the EEC was formally developed out of the European Coal and Steel Community but the OEEC was a forerunner and played its part in creating cooperation and reducing tariff barriers)

The Chinese plan is to make available $500bn of soft loans to participating countries in Asia, Africa and Latin America to allow them to buy Chinese goods. The plan emerged as the Ministry of Commerce privately admitted that the contribution of exports to China’s economic growth may have hit its ceiling in 2007, at least as far as exports to existing western markets is concerned. Knowing the ever pragmatic Chinese, any modern Chinese Marshall Plan is more likely to be linked to specific aid to buy Chinese goods or services rather than the original Marshall plan which was mostly loans to small and medium sized enterprises to re-establish production in war torn Western Europe. The idea of the original plan was to create social cohesion and stability but wasn’t a purely altruistic endeavor. The US wanted a secure and prosperous Europe not a divided and weakened one that could slide under Soviet domination. But in a similar way, China may be looking to do more than boost exports into new markets; such vast sums of money could realistically do much to kick start lasting trade or political power blocks in the way that the Marshall Plan helped cement the formation of the North Atlantic Alliance and from that NATO. The Chinese have often shown their astuteness in playing the long game, with so much wealth at their disposal may be their modern day plan has more than the short term economic gain of boosting exports behind it.

–Stuart Burns

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