Amid Donald Trump's trade war threats, China weighs helping Wall Street, Tesla

US President Donald Trump and Chinese President Xi Jinping (right) pose prior to a meeting on the sidelines of the G20 Summit in Hamburg, Germany, on July 8, 2017.
US President Donald Trump and Chinese President Xi Jinping (right) pose prior to a meeting on the sidelines of the G20 Summit in Hamburg, Germany, on July 8, 2017. PHOTO: AFP

SHANGHAI (BLOOMBERG) - Coincidence or not, China appears set to ease restrictions on foreign carmakers and banks amid sustained pressure from US 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 companies to take control of local joint-ventures in the nation's US$40 trillion (S$54 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 Mr Trump - the timing could yet prompt him to claim credit.

Mr Trump has repeatedly threatened a trade war with China if it fails to rein in North Korea's push for nuclear weapons, and he is 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 United States and a need for foreign expertise in sectors like electronic vehicles.

The currency's stabilisation 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 Mr Larry Hu, an economist at Macquarie Securities in Hong Kong.

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

Mr Cui Tiankai, China's ambassador to the US, told the Bloomberg Global Business Forum in New York on Wednesday that his country does not want a trade war with America. He also welcomed participation in Mr Xi's Belt and Road Initiative.

Wall Street banks have struggled to expand retail and investment-banking businesses after spending at least US$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 US 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 per cent ownership in joint venture securities firms, while overseas investors cannot hold more than 25 per cent of a Chinese bank, with a single investor capped at 20 per cent.

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 per cent, according to the China Banking Regulatory Commission.

"If China continues to maintain the limits on foreign institutions, it could push Trump to an extreme and make the relationship worse," said visiting associate professor Xia Chun 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 carmakers to set up joint ventures with local counterparts.

A relaxation of the rule would give companies like Tesla the opportunity to set up fully owned manufacturing operations in China, the world's biggest market for electric vehicles.

Ms Iris Pang, an economist at ING Bank NV in Hong Kong, does not see China's moves as kowtowing to Mr 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.

Mr Trump and Mr 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.

Mr Stephen Bannon, the former White House chief strategist, said Mr Trump respects Mr Xi more than any other foreign leader.

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

Treasury Secretary Steven Mnuchin last week warned that the US may impose additional sanctions on China, potentially cutting off access to the American financial system, if it does not follow through on UN sanctions against North Korea.

In July, after high-level economic talks ended with no breakthroughs, Mr Mnuchin said the US 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 US is putting on a lot of pressure," said Ms Alicia Garcia Herrero, chief economist at Natixis Asia in Hong Kong. "So China might make some concessions."