Coverage of the 85 billion-dollar AIG bailout by the Fed in the Chinese media has generally been fairly reserved. That’s partly because AIG owns around twenty per cent of the People’s Insurance Company of China, the country’s largest casualty insurer, and the government doesn’t want anyone getting worked up about a possible threat to its soundness or that of their policies. AIG also has a special, indeed unique, history in China. It is the only major U.S. company (eighth largest in the world until a few days ago) that was founded here. It started out in 1919 in Shanghai, founded by a gentleman named Cornelius Vander Starr. Of course it eventually morphed into the current globe-straddling, debt encumbered behemoth we see staggering around today. But the China connection remained strong, largely through the efforts of AIG’s former chairman, Maurice “Hank” Greenberg, who first started visiting China back in 1975 and has remained a true “Friend of China” as Beijing terms it since then. Greenberg (who was in China for the Olympics and was feted at a dinner in the Forbidden City attended by other FOCs such as Henry Kissinger and George H.W. Bush) was forced out of the top job at AIG in 2005 amidst a corruption scandal, but the company retains (or retained) a glow of China friendliness that is unique among large international corporations. Because of that there has been some speculation about whether Beijing might use some of its infamous, 1.5 trillion dollar mountain of foreign reserves to help bail out AIG.

I think the short answer is probably a slightly weasely, ‘that depends.’ I wouldn’t expect sentimentality to play much of a role in Chinese investment decisions anyway, and that is particularly the case now that Greenberg has gone. There’s also the fact that the two biggest recent investments by the Chinese sovereign wealth fund in U.S. corporations, Morgan Stanley (oops!) and Blackstone have lost the country hundreds of millions of dollars. While officially no one has complained, there have been spurts of venom about the root causes of the crisis in the media that indicate likely reflect some resentment in the halls of power. This for example is from a front page story in yesterday’s Global Times, a popular off shoot of the People’s Daily that certainly represents the more robust end of the nationalist spectrum in China:

Media and experts around the world have expressed disappointment and outrage over how the U.S. dealt with the financial crisis… They think that the U.S. national egoism, which took advantage of the dollar’s hegemonic position to jeopardize the world economy, is the main culprit for this situation… and that it is the U.S.’s irresponsible export of crisis that has dragged the world into an abysmal whirlpool.

Still, whatever emotions are washing around, good or ill, the biggest driver for investment decisions for the Chinese like everyone else ultimately is profitability. And there are certainly some firesale prices out there for the cash endowed. There’s already a report on CNBC that the CITIC Group is considering a bid for Morgan Stanley. Shen Hongpu, researcher at China Cinda asset management Corporation, told our Lin Yang that he believes the “East Asian countries, including China, are likely to play an important role in recapitalization. Investing in Blackstone and investing in AIG are different in nature. China Investment Corp should not take all the blame for the loss in its investment in Blackstone. It might have made some mistakes, but to be fair, market assessment of private equity funds, like Blackstone, is always problematic.”

Furthermore, Washington’s bailout makes investing in AIG different, Shen argues. “With the 85 billion-dollar injection and the 79.9% stake in AIG, the U.S. government almost nationalized the company. This should restore some confidence among investors.” We’ll see. The 83 year-old Greenberg –whose 11 per cent share in AIG has diminished in value by 17 billion dollars– now says he is interested in taking the company private or buying some subsidiaries. He’ll need allies in that venture and no doubt will turn to his old friends in Beijing for help. Even an old FOC like himself may find a little reluctance though. Given the current near panic on world markets and their past experiences with investment bankers, I am sure the Chinese will take their time before they plunk down any more billion-dollar bets on U.S. companies.