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A major shakeup of China's export strategy is taking place. The country is considering altering its focus and may attempt to "create" more external demand by extending loans to trading partners.

The Economic Observer learned that the Ministry of Commerce (MOFCOM) had held numerous meetings recently to mull over new means and markets to spur plummeting exports following the global financial crisis.

In view of slower demand from the economically wounded US and EU markets - China's top export destinations - China would now actively explore the full potential of its neighbours and developing countries in Africa, Asia and South America.

While external demand plummeted, productive capacities continued to grow as China's four-trillion-yuan stimulus package began to take effect.

According to a State Council Development Research Center report - meant for internal circulation only - China's production capacity utilization rate only stood at about 50% to 60%, and many sectors experienced over-capacity in production.

The surplus production needed buyers, yet domestic demand would not surge dramatically in the foreseeable future, thus China must continue to seek buyers abroad.

To address the issue of boosting exports and over-capacity, Xu presented the Chinese "Marshall Plan" proposal to the MOFCOM recently.

The official said the Chinese Marshall Plan might bring about positive impact in enlarging external demand in new markets.

However, even Xu himself admitted that the proposal is not without flaws.

At present, Chinese law and regulations prohibits withdrawal from the foreign reserves for direct lending to a third country. In addition, banks intending to offer foreign loans must first buy foreign currency from the State Administration of Foreign Exchange.

On one hand, Chinese banks have a rather low loan-verses-deposit ratio, whereby huge sums of yuan-denominated deposits are left "idle"; but on the other hand, this yuan-denominated money is barred from being extended as loans to foreign enterprises under current regulations.

While the Chinese Marshall Plan is still pending further consideration and approval from the MOFCOM, the EO learned that ministry officials had reached a consensus that creating new demand and markets would be a priority in the near future.

One of the first steps to develop new markets would be establishing more economic co-operation zones and free trade agreements with other developing countries, especially those that share borders with China.