China unlikely to rescue Wall Street

BEIJING -- Wang Jun has been reading up on the U.S. financial crisis. Books on the subprime mortgage meltdown are hot sellers here in the Chinese capital.

But until recently, Wang, 33, had seen the debacle as a long-distance drama. Now, out house-shopping with his wife, he's worried that Wall Street's woes will force the Chinese government to impose new mortgage regulations and possibly drive the cost of a home beyond his reach. "The crisis seemed so far away," says Wang, who works for a Beijing publishing house. "But sometimes it's so near."

Despite his worries, Wang is sure about one thing: China shouldn't help bail out flailing U.S. banks and investment firms. "I don't think China has the financial power to help America," he says. "We have our own problems. To look after our own business first is the best policy."

Brimming with cash — a world-leading $1.8 trillion in foreign exchange reserves — China looks like a potential white knight for Wall Street's distress. But the Chinese are wary, burned over the past year on investments in U.S. financial firms and caught in the quicksand of a sinking dollar. Few analysts expect China to be a leader rescuing the U.S. financial system.

China's Internet chat rooms are aflame with arguments over whether Chinese money should go to help bail out the titans of U.S. finance. Many Chinese believe the investments would be better made at home, where millions still live in rural poverty despite their country's emergence as an economic powerhouse. "I am worried the crisis could be like dominoes and affect one country after another," says Athena Zhang, 36, a manager at a Beijing clean-energy company. "But China must help itself first before helping the U.S. We must safeguard the Chinese economy first."

Last year, China Investment Corp. (CIC), set up by the government to seek high returns on that foreign reserve nest egg, invested $3 billion for a stake in the Blackstone Group and $5 billion in Morgan Stanley.

So far, both investments have been embarrassing failures, victims of the U.S. financial crisis. "They have been widely criticized internally for the investments they made previously," says Nicholas Lardy, senior fellow at the Peterson Institute for International Economics. "It is not likely that they will make additional strategic investments in U.S. financial institutions."