Trump’s Threats Loom as China Weighs Opening to Wall Street, Tesla

  • China is said to consider giving foreign firms more access
  • Moves may be concession to U.S. before Trump visit in November

A Deep Dive Into the Future of U.S.-China Trade

Coincidence or not, China appears set to ease restrictions on foreign automakers and banks amid sustained pressure from U.S. President Donald Trump to open up its economy.

China’s central bank is said to be drafting a package of reforms that could include allowing foreign firms to take control of local joint-ventures in the nation’s $40 trillion financial industry. Authorities in Beijing are also discussing a plan to allow foreign carmakers to set up wholly owned electric-vehicle businesses, revising a policy in place since the 1990s.

While neither proposal is final -- and may be completely unrelated to Trump -- the timing could yet prompt him to claim credit. Trump has repeatedly threatened a trade war with China if it fails to rein in North Korea’s push for nuclear weapons, and he’s scheduled to visit President Xi Jinping in Beijing at some point in November.

Economists said China may have multiple reasons for shifting policy now, including a desire to ease tensions with the U.S. and a need for foreign expertise in sectors like electronic vehicles. The currency’s stabilization makes it a good time for the People’s Bank of China to complete a long-awaited move to open up China’s financial system, according to Larry Hu, an economist at Macquarie Securities Ltd. in Hong Kong.

Trade War

“What China wants in return from Trump is no trade war,” Hu said. “Given China runs a trade surplus with the U.S., that would hurt China more. So China needs to walk a fine line of avoiding a trade war while opening at its own pace.”

Cui Tiankai, China’s ambassador to the U.S., told the Bloomberg Global Business Forum in New York on Wednesday that his country doesn’t want a trade war with America. He also welcomed participation in Xi’s “Belt and Road” infrastructure initiative.

Wall Street banks have struggled to expand retail and investment-banking businesses after spending at least $60 billion in China. JPMorgan Chase & Co. last year sold its stake in a Chinese securities joint venture, and Chief Executive Officer Jamie Dimon said in June the U.S. bank is seeking to find a new structure that would eventually give it full control.

Rules limiting foreign banks to minority stakes in joint ventures reduced their sway over key decisions. Foreign lenders are limited to 49 percent ownership in joint venture securities firms, while overseas investors cannot hold more than 25 percent of a Chinese bank, with a single investor capped at 20 percent.

Overseas banks had about 1,000 outlets in China compared with more than 67,000 operated by the four largest state-owned lenders. By the end of 2015, foreign firms’ share of the nation’s banking assets had fallen to a six-year low of 1.38 percent, according to the China Banking Regulatory Commission.

Read more on China’s plans to relax rules on electric vehicles

“If China continues to maintain the limits on foreign institutions, it could push Trump to an extreme and make the relationship worse,” said Xia Chun, a visiting associate professor at the University of Hong Kong. “The reform could serve multiple purposes. It gives a little pressure to domestic markets and shows a positive change to the outside.”

A change in China’s policies regarding electric vehicles would be a landmark departure from existing rules, which require foreign automakers to set up joint ventures with local counterparts. A relaxation of the rule would give companies like Tesla Inc. the opportunity to set up fully owned manufacturing operations in China, the world’s biggest market for electric vehicles.

Iris Pang, an economist at ING Bank NV in Hong Kong, doesn’t see China’s moves as a kowtowing to Trump, but rather a recognition that it needs foreign know how -- especially in the electric vehicles sector.

“They need foreign investors knowledge and research capabilities to make the final products better and to achieve that level faster,” she said.

Trump and Xi have increased communication in recent weeks, punctuated by a phone call earlier this week in which the Chinese leader said the two countries share extensive common interests. Stephen Bannon, the former White House chief strategist, said Trump respects Xi more than any other foreign leader.

‘Unprecedented’ Threat

Still, the relationship remains tense. Besides the spat over North Korea, Trump earlier this month blocked a China-led takeover of a U.S. chipmaker on national-security grounds. His top trade negotiator, Robert Lighthizer, on Monday called China’s economic model an “unprecedented” threat to the global trading system.

Treasury Secretary Steven Mnuchin last week warned the U.S. may impose additional sanctions on China, potentially cutting off access to the American financial system, if it doesn’t follow through on UN sanctions against North Korea. In July, after high-level economic talks ended with no breakthroughs, Mnuchin said the U.S. would push China to lift foreign ownership restrictions in its financial services industry and to remove hurdles for the technology sector.

“It’s obvious the U.S. is putting a on lot of pressure,” said Alicia Garcia Herrero, chief economist at Natixis Asia Ltd. in Hong Kong. “So China might make some concessions.”

— With assistance by Keith Zhai, Jun Luo, Heng Xie, and Enda Curran

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