Why China Doesn't Want to Invest in Citigroup

The WSJ's Rick Carew reports today that the Chinese government might prevent the latest proposed injection of Chinese capital into a troubled US institution. For a good backgrounder on where the Chinese government is coming from, it's worth checking out James Fallows in the latest Atlantic:

While the CIC is figuring out its own future, outsiders are trying to figure out the CIC--and also SAFE, which will continue handling many of China's assets. As far as anyone can tell, the starting point for both is risk avoidance. No more Blackstones.

China's investment in Blackstone, according to Fallows, is much more than an equity stake which is trading below where it was bought. It's also a public-relations nightmare: the Chinse public thinks that Blackstone essentially stole their cash. Indeed, on his blog, Fallows says that "Stephen Schwarzman of Blackstone is about the most reviled foreigner in China at the moment".

Against this background, it's easy to understand why China might have second thoughts about injecting new equity capital into Citi. The upside is merely financial, and it's not like China has any shortage of dollars. The downside, by contrast, is political.