Image source: Reuters

WASHINGTON/BEIJING: China's plan to punish a US automaker accused of price-fixing is a sign of how Beijing could retaliate if President-elect Donald Trump upends decades of relations between the two nations.

Trump's assertion that the United States need not be bound by the policy that Taiwan is part of "one China" would erode a bedrock of US-China ties that has underpinned the vast increase in trade and cooperation between what are now the world's two largest economies.

Few expect the disagreement will lead to outright military confrontation, nor even the kind of economic war that many feared could be launched by Trump's threat during the US presidential campaign to slap tariffs of up to 45 percent on Chinese imports.

However, a rising China has plenty of other ways to push back hard if Trump presses on the Taiwan question, which most analysts see as the most sensitive part of the US-China relationship.

In what might be a shot across the bow of the Trump administration, due to take office on Jan 20, the official China Daily newspaper quoted a state planning official saying China will soon penalise an unnamed US automaker for monopolistic behaviour. While the official said no one should read "anything improper" into this, shares of General Motors Co and Ford Motor Co skidded.

Auto industry sources said this specific investigation was already under way before Trump's recent comments.

However, the manner in which it was announced, by saying only that it was a US automaker before a formal announcement of fines, has raised questions around whether officials might be seizing on the case to send a shot across the bow of the incoming Trump administration.

Pressure on other US companies, such as Boeing Co and General Electric Co, with large interests in China could be one of the most tangible tools of retaliation, together with new limits on access to the country's huge markets. US business interests in China are estimated at more than US$500 billion.

Wider economic steps - such as China, America's biggest creditor, selling a significant part of its US$1.16 trillion of US Treasuries, or weakening its currency - seem unlikely, the first because it would slash the value of China's US bond portfolio and the second because it could accelerate capital flight, experts said.

Beijing could speed up a military build-up that had begun to slow along with Chinese economic growth, carry out naval exercises close to Taiwan - which it regards as a renegade province - and withhold diplomatic cooperation on issues such as Iran and North Korea's nuclear programs.

"Taiwan policy is what China considers a core interest ... and it's prepared to go to great lengths to defend it," said Eric Altbach, senior vice president at the Albright Stonebridge Group consultancy in Washington and a former deputy assistant US trade representative for China affairs.

The consensus within the Obama administration is that Trump, who irked China by taking a phone call from Taiwan's president, was not fully aware of the potential backlash from Beijing over his questioning of the "one China" policy, a US official said, speaking on condition of anonymity.

The hope is that by the time Trump takes over from President Barack Obama, he will recognise that China has advanced so far economically, diplomatically and militarily that it is unwise to pick fights with Beijing over such a bedrock principle, he added.

A former senior US official took a more pessimistic view.

"Trump has basically guaranteed that the first year in the China relationship will be a combative, competitive one, and the question is how bad it will get," he said. "The Chinese now are basically putting together their list on how to retaliate."

There are at least three ways in which the matter could play out, US China experts said. Trump could backtrack over time, much as former US President George W. Bush did.

A second track would be if Trump goes on questioning the "one China" policy without taking concrete action. The third, considered unlikely by US officials past and present, would be a drift towards military confrontation.

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