SAN FRANCISCO (MarketWatch) — American International Group Inc.’s plan to sell an Asian insurance business called Nan Shan was derailed Tuesday by tension between Taiwan and China.

AIG agreed last year to sell Nan Shan to China Strategic, a battery maker, and Hong Kong investment firm Primus for more than $2 billion.

But the Investment Commission of Taiwan’s Ministry of Economic Affairs blocked the deal Tuesday, saying the new owners lack experience in the life-insurance business and may struggle to raise capital.

Bruising August for stocks

It’s been a bruising month for stocks, with the Dow and S&P 500 on pace to post their worst August since 2001 and the Russell 2000 set to see its weakest August in 12 years. There’s not a lot of bright lights on the horizon for September, either.

The news is another bump in the reorganization of AIG /quotes/comstock/13*!aig/quotes/nls/aig (AIG 34.00, +0.07, +0.21%) after the insurance giant was saved from collapse in 2008 by more than $100 billion in U.S. government support. The company is trying to sell businesses to raise money it can use to repay the government.

“AIG is disappointed by the Investment Commission’s decision concerning the sale of Nan Shan,” the insurer said in a statement that was emailed to MarketWatch.

“AIG has collaborated with the Taiwanese regulatory authorities from the outset of the sale process,” the company added. “In addition to meeting the criteria determined by the Investment Commission and other regulators, AIG believes that its additional accommodations of regulatory requests, including a seven-year lockup mechanism agreed to by the Primus Nan Shan consortium and a $325 million escrow agreement agreed to by AIG, demonstrate clear support for the Nan Shan capital structure and incontrovertible commitment to the long-term health and prosperity of Nan Shan.”    ;FULL STORY]