Enlarge By China Photos, Getty Images People view models of real estate units in Shaanxi Province. Despite China's wealth of cash, it is not expected to invest in U.S. financial institutions. FINANCIAL TURMOIL FINANCIAL TURMOIL More coverage: Recession is official, economists say 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." Past deals make future ones harder "Previous deals have produced a lot of criticism," says Michael Pettis, a Peking University finance professor and former New York investment banker. "From a psychological point of view, if I was a policymaker, I would not try too hard to lobby for a new investment. I believe there will be reluctance to make a major investment in a U.S. institution." The value of Chinese acquisitions in the U.S. is down 73% so far this year — to $914 million from $3.4 billion in the first nine months of 2007, according to Thomson Reuters. The 2007 figure was inflated by the Blackstone deal. In a recent report, the Boston Consulting Group urged caution for any Chinese banks tempted to buy U.S. banks. The consultancy noted that Chinese bankers have little experience negotiating and managing overseas mergers. A low purchase price "should not be the only reason for a deal," Boston Consulting advised. And the Peterson Institute's Lardy says China's state-owned banks and investment firms couldn't get government "approvals fast enough to be players in the current situation. By the time a recommendation from a potential investor, say CIC, to the State Council or Politburo Standing Committee is considered, the deal has been taken up by another player." He notes that the Blackstone and Morgan Stanley deals occurred before Wall Street firms were under intense pressure to find partners and raise cash quickly. China could play another role in Wall Street's rescue: buying the Treasury securities the U.S. government will auction off to pay for the $700 billion bailout. China is already a big investor in the Treasury market. China owned $518.7 billion in Treasury securities on July 31, second only to Japan's $593.4 billion. Investors have been fleeing to the safety of U.S. Treasuries amid the turmoil on Wall Street, driving the prices up and yields down. "Asian investors are rushing into U.S. Treasuries because they have been extremely risk-averse," says Chi Lo, head of investment research at Hong Kong-based Ping An of China Asset Management. "The $700 billion rescue is a new matter." Europe's bonds a better deal Lo says Chinese and other Asian investors — governments, banks, firms and individuals — will be reluctant to finance the Treasury bailout plan without higher interest rates as a sweetener. For now, Europe's top-rated bonds look like a better bargain: "U.S. bill and bond yields will have to go up to attract Asian buyers," Lo says. He sees yields on the benchmark 10-year Treasury bond rising to 4.3% from less than 3.7% now. "Whatever the U.S. is trying to issue would have to be relatively more attractive than what the rest of the world is offering," agrees Joanne Hon, head of Asia research for Thomson Reuters. And a Thomson Reuters survey of 100 market analysts in August — before Wall Street melted down and Treasury announced its rescue plan — was already predicting that 10-year Treasury yields would rise to 4.5% over the next year. One reason the Chinese will be looking for higher rates: They need insurance against the wobbly dollar. They have been clobbered by the dollar's 9% free fall against the Chinese yuan over the past year, which has shaved about $50 billion off the value of their Treasury holdings. While the Chinese have been cautious about investing in Wall Street's wreckage, their economic rivals in Japan have not. Japanese firms have already made $26.1 billion worth of acquisitions in the U.S. this year, up nearly fivefold from the same period a year earlier, Thomson Reuters reports. Japan's biggest bank — Mitsubishi UFJ Financial — agreed to buy a 21% stake in Morgan Stanley. The Nomura investment bank bought up the Asian operations of Lehman Bros., which has sought bankruptcy protection. "The Japanese appetite," Hon says, "is not just for sushi and sashimi." Wiseman reported from Hong Kong. Guidelines: You share in the USA TODAY community, so please keep your comments smart and civil. Don't attack other readers personally, and keep your language decent. Use the "Report Abuse" button to make a difference. You share in the USA TODAY community, so please keep your comments smart and civil. Don't attack other readers personally, and keep your language decent. Use the "Report Abuse" button to make a difference. Read more