Post-COVID, Is China Only Country With Enough Reserves to Lend?

At present, China is possibly the only country with enough reserves & cash to lend to others to rebuild post-COVID.

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(Photo: iStock / Altered by Kamran Akhter / The Quint)

On 3 April 1948, three years after the WWII ended, President Truman signed the Economic Recovery Act of 1948. It came to be known as the Marshall Plan, named after Secretary of State George Marshall, who, in 1947, proposed that the United States provide economic assistance to restore the economic infrastructure of post-war Europe.

By most accounts, the Marshall Plan played a definitive role in the reconstruction of Europe, with far-reaching consequences, not the least of which, arguably, was greater growth and prosperity for both the United States and Western Europe for much of the 20th century.

With the global economy gasping for breath in the wake of the COVID-19 pandemic, talks of a reconstruction plan to resuscitate flailing economies are beginning to surface, a conversation around the Marshall Plan being invoked in many quarters.

But is it an apposite approach to the current crisis that has already lopped off a substantial percent of the global GDP?

How Will a ‘Marshall-esque Plan’ Pan Out Post Corona?

The global, not to mention the European, economy, is a vastly different construct from nearly 75 years ago.

How will a 2020 Marshall-esque Plan pan out? Who will fund and lead the reconstruction this time around, in a debt-laden world with governments struggling to keep economies from failing?

Who has the reserves and wherewithal to lead an international reconstruction? And then, what will be reconstructed? The Marshall Plan has been called no less than the “most unsordid act in history” by Churchill, and alternatively, an act of the most enlightened self-interest in history. The plan was both. The American commitment to the rebuilding of Europe is believed to have sprung both from altruism, and also from self interest – during the reconstruction, the plan's annual funding represented 13 percent of the American budget, of which more than two-thirds went to American businesses dealing with the Europeans.

The spirit of the plan was however best captured in the words of George Marshall himself: ‘Aside from the demoralising effect on the world at large and the possibilities of disturbances arising as a result of the desperation of the people concerned, the consequences to the economy of the United States should be apparent to all. It is logical that the United States should do whatever it is able to do to assist in the return of normal economic health in the world, without which there can be no political stability and no assured peace.’

Can the World ‘Afford’ a China-Led Economic Recovery Plan?

In today's context, as the question of who is in a position to lead a post COVID-19 reconstruction is asked, the answer that follows is almost a reflexive one: China.

At present, China is possibly the only country with enough reserves and cash to lend to others on a scale required to rebuild in the wake of the pandemic.

Even if the world's leading behemoth were in a financial position to do so, its current political ethos would preclude that option, since its current administration is more bent on protectionism than an internationalist role for the US. The question that arises then is: Can the world afford to, and does it want a China-led reconstruction? China was the first country to be afflicted by COVID-19, and by most accounts, the country where the pandemic originated.

It was also the first to deal with it, albeit, in its own inscrutable way, and the world is still waiting to see what transpires, as China reopens its economy.

If historical developments are anything to go by, then one must also ask, at what price can we allow a Chinese-led reconstruction? Any China-led recovery can only happen if it serves the purpose of the People’s Republic of China first.

It is, in any case, unlikely to follow the stated spirit of the Marshall Plan.

Chinese ‘Gift’ of OBOR Came With Onerous Strings Attached – Can Partner Nations Trust China Again?

In the words of George Marshall himself, “Our policy is directed not against any country or doctrine, but against hunger, poverty, desperation and chaos. Its purpose should be the revival of a working economy in the world so as to permit the emergence of political and social conditions in which free institutions can exist.” China’s One Belt One Road (OBOR) project is a case in point, a combination of Chinese financial diplomacy and hard-headed investment for a plan to develop markets and increase its global influence. OBOR has given cause for pause to many governments who took the Chinese offer to build infrastructure.

Smaller countries that sought to lead development with Chinese money, now find themselves neck deep in debt to the Chinese government, with key, even sensitive, infrastructure controlled partially or entirely by Chinese entities.

For many partnering nations, particularly smaller nations, along the way, the Chinese ‘gift’ has come with onerous strings attached. Chinese companies with Chinese labour and Chinese equipment undertook these massive projects. The net gain is China's, as it used and uses the OBOR to create and open markets for its own goods and services.

Can we expect therefore, a post-pandemic reconstruction plan to be much different? And will there be takers?

On the demand side, it may not be so easy.

Anti-China Sentiments Brewing

There’s already an anti-China sentiment brewing, given the suspicion still strong, of China being ‘complicit’ in the spread of coronavirus – certainly in not doing enough to contain it at the start and worse by keeping silent on it for several weeks. Japan has already announced incentives for those Japanese companies moving out of China. Germany has followed Australia, France, the UK and the US in directing its ire at China, and demanding greater transparency regarding the origin of the virus.

More recently, India tweaked its rules when a Chinese Bank, People's Bank of China, increased its nominal stake from 0.8 percent to 1 percent in HDFC bank. And of course, the US-China trade war was already in full swing before the pandemic broke.

Popular sentiment across the globe has been rising against China. Calls for boycotts of Chinese goods, and lawsuits against the Chinese government are finding their way into popular discussions, especially as we receive news of Chinese companies buying up stressed assets on the cheap around the globe. These anti-China impulses are surfacing even as countries hitherto with open economies, are turning to protectionist measures to keep economies afloat by protecting domestic producers through raised tariffs, bring off-shored production back home, and the like.

What Are We Seeking to ‘Reconstruct’ Post-COVID?

So perhaps, an even more nuanced question is, will there be takers for a Chinese-led reconstruction/Marshall Plan equivalent? The second question that begs to be answered is: Reconstruction of WHAT? WW-II had razed the Europe to the ground. Under the Marshall Plan, funds both loan and grants were to help Europe rebuild its decimated economy. In the present context, there has been no such ‘destruction’. This time around, there are no bombed cities to build, no burnt farmlands to reclaim. What, then, would the object of reconstruction be?

Should China Be Encouraged to Participate in ‘Make in India’?

For the existing businesses and consumers, the need of the hour is financial support to build back businesses, focus on internal development, perhaps even pursue ways to get a spot as an alternative destination in the global value chain.

For India, in particular, it has been suggested that China be encouraged to participate in ‘Make in India’, by setting up capacity here. It may make sense for India to get China do that, but what’s in it for China? 

China has its own existent large-scale capacities which it would rather use and export the finished goods to India and other countries, especially to shore up its own slowing economy. China’s game plan thus far has been to build huge capacities, sell at hyper competitive prices, and develop a huge trade surplus while capturing world markets. The Chinese export juggernaut started with exporting raw materials, then a steady climb up the value chain to become the factory to the world, and export to the rest of the world. If India and or other countries do put up trade barriers or raise import tariffs against Chinese goods and compel the Chinese to set up local manufacturing with a minimum value-add locally (to ensure it’s not a semi or completely knocked-down kit model at play) that might just work.

But it may be worth remembering that Indian exports to China are growing and may get impacted in retaliatory tactics.

The other way would be for China to invest in new infrastructure projects – construction, roads, power etc. This would give the Indian and other economies a fillip and also serve the Chinese purpose of selling/using their equipment in the projects. That could be China's new millennium Marshall Plan.

Make India An Attractive Destination for Not Only China, But Other Countries Moving Out Of China

But then, can one ignore the lessons of OBOR? It’s worth recalling that India chose to stay out of OBOR , and though hypothetical, will India recalibrate and participate in a Chinese Xi Jinping Plan? That is why, perhaps it is time to recall another aspect of the Marshall Plan – “Such assistance, I am convinced, must not be on a piecemeal basis as various crises develop. Any assistance that this Government may render in the future should provide a cure rather than a mere palliative.”

So then, is there a way out for countries like India, without a major external infusion to kickstart the economy?

The answer perhaps is not one or the other. Make India an attractive destination not only for Chinese companies to come here, but also those wishing to out of China and create an alternate supply chain (why have most chosen Vietnam and not India?). Restrict Chinese from investing in certain protected areas if there is a security risk feared. And alongside, enunciate long term policy on tax amongst other aspects where we keep changing norms creating uncertainty.

The Vodafone dispute isn’t forgotten after all these years. And as we wait for the world to fix itself and figure out what really is going on, India needs to take one single bold but critical step. Forget what pitfalls might happen in the future for now and fight to survive-provide Quantitative Easing by printing more money leading to a stimulus of at least 5/6 percent of GDP.

How Can India Become An Easier Place to Do Business In?

Industry in India and all Indians need help desperately. The poor daily wage earners and the labour are in dire straits. Banks need not only roll over the quarter's interest payment but also grant waivers. Banks risks at this time must be back-stopped by the government, or else the crisis will remain where it is, the stimulus falling flat unless there is fresh lending to get the wheels of the economy moving again. The sops granted at sub 2 percent of GDP are grossly inadequate, and will not serve any real purpose. India can rise again, but the prerequisite to that is a savvy nimble government taking hard decisions on the economic front (the way they have on the political front by announcing a nation wide lock down from 25 March).

It’s still not too late for the government’s stated target of USD 5 trillion GDP to be achieved by 2024, should some appropriate steps – including long-awaited reforms – be undertaken internally, and India can genuinely become an easier place to do business in. Amen!

(Radha Roy Biswas is a public policy and advocacy professional by training. She returned to India after 15 years in the US. She consults in her field and devotes some time to writing and teaching.

Manoj Mohanka is a businessman and serial entrepreneur, but is more interested in the affairs of the state rather than the state of affairs. He follows politics and religion closely, and runs a trust to educate Muslim girls from underprivileged families.

This is an opinion piece and the views expressed are the authors’ own. The Quint neither endorses nor is responsible for them.)