How to replace ' or any special character in when using XMLELEMENT Oracle

You can make use of utl_i18n package and unescape_reference() function in particular. Here is an example:

clear screen;
column res format a7;

select utl_i18n.unescape_reference(
          rtrim(
               xmlagg( -- use of xmlagg() function in 
                       -- this situation seems to be unnecessary 
                       XMLELEMENT(E,'I''m'||':')
                      ).extract('//text()'),':'
                )
        ) as res
 from dual;

Result:

RES   
-------
I'm  

SELECT dbms_xmlgen.convert( xmlagg(XMLELEMENT(E,'I''m'
  ||':')).extract('//text()').getclobval() ,1)
FROM dual;

---

I'm: