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http://cn.nytimes.com/article/china/2012/11/27/c27pingan/en/

2012年11月27日

Lobbying, a Windfall and a Leader’s Family

By DAVID BARBOZA

SHENZHEN, China — The head of a financially troubled insurer was pushing Chinese officials to relax rules that required breaking up the company in the aftermath of the Asian financial crisis.

The survival of Ping An Insurance was at stake, officials were told in the fall of 1999. Direct appeals were made to the vice premier at the time, Wen Jiabao, as well as the then-head of China’s central bank — two powerful officials with oversight of the industry.

“I humbly request that the vice premier lead and coordinate the matter from a higher level,” Ma Mingzhe, chairman of Ping An, implored in a letter to Mr. Wen that was reviewed by The New York Times.

Ping An was not broken up.

The successful outcome of the lobbying effort would prove monumental.

Ping An went on to become one of China’s largest financial services companies, a $50 billion powerhouse now worth more than A.I.G., MetLife or Prudential. And behind the scenes, shares in Ping An that would be worth billions of dollars once the company rebounded were acquired by relatives of Mr. Wen.

The Times reported last month that the relatives of Mr. Wen, who became prime minister in 2003, had grown extraordinarily wealthy during his leadership, acquiring stakes in tourist resorts, banks, jewelers, telecommunications companies and other business ventures.

The greatest source of wealth, by far, The Times investigation has found, came from the shares in Ping An bought about eight months after the insurer was granted a waiver to the requirement that big financial companies be broken up.

Long before most investors could buy Ping An stock, Taihong, a company that would soon be controlled by Mr. Wen’s relatives, acquired a large stake in Ping An from state-owned entities that held shares in the insurer, regulatory and corporate records show. And by all appearances, Taihong got a sweet deal. The shares were bought in December 2002 for one-quarter of the price that another big investor — the British bank HSBC Holdings — paid for its shares just two months earlier, according to interviews and public filings.

By June 2004, the shares held by the Wen relatives had already quadrupled in value, even before the company was listed on the Hong Kong Stock Exchange. And by 2007, the initial $65 million investment made by Taihong would be worth $3.7 billion.

Corporate records show that the relatives’ stake of that investment most likely peaked at $2.2 billion in late 2007, the last year in which Taihong’s shareholder records were publicly available. Because the company is no longer listed in Ping An’s public filings, it is unclear if the relatives continue to hold shares.

It is also not known whether Mr. Wen or the central bank chief at the time, Dai Xianglong, personally intervened on behalf of Ping An’s request for a waiver, or if Mr. Wen was even aware of the stakes held by his relatives.

But internal Ping An documents, government filings and interviews with bankers and former senior executives at Ping An indicate that both the vice premier’s office and the central bank were among the regulators involved in the Ping An waiver meetings and who had the authority to sign off on the waiver.

Only two large state-run financial institutions were granted similar waivers, filings show, while three of China’s big state-run insurance companies were forced to break up. Many of the country’s big banks complied with the breakup requirement — enforced after the financial crisis because of concerns about the stability of the financial system — by selling their assets in other institutions.

Ping An issued a statement to The Times saying the company strictly complies with rules and regulations, but does not know the backgrounds of all entities behind shareholders. The company also said “it is the legitimate right of shareholders to buy and sell shares between themselves.”

In Beijing, China’s foreign ministry did not return calls seeking comment for this article. Earlier, a Foreign Ministry spokesman sharply criticized the investigation by The Times into the finances of Mr. Wen’s relatives, saying it “smears China and has ulterior motives.”

After The Times reported last month on the family’s wealth, lawyers representing the family said the article contained unspecified errors and that the family reserved the right to take legal action.

In addition, the Chinese government blocked access to the English-language and Chinese-language Web sites of The Times in China — and continues to do so — saying the action was “in accordance with laws and rules.”

Neither Mr. Wen, who is expected to retire in March, nor Mr. Dai, who is now the head of the National Social Security Fund, could be reached for comment.

Western and Chinese bankers and lawyers involved in Ping An’s 2004 Hong Kong stock listing and a subsequent 2007 listing in Shanghai said they did not know that relatives of Mr. Wen had acquired large stakes in the company.

Executives at Morgan Stanley and Goldman Sachs, which once held sizable stakes in Ping An and served as lead underwriters for the Hong Kong public offering, also said they were never told of the holdings. At Ping An’s urging, the two investment banks had also appealed in 2000 to Mr. Wen and other regulators for the waiver from the breakup rule. The private equity divisions of the two investment banks sold their combined stakes to HSBC in 2005 for about $1 billion — a 14-fold increase on their initial investment.

Thousands of pages of publicly available corporate documents reviewed by The Times suggest that the Ping An stakes held by the prime minister’s relatives were concealed behind layers of obscure partnerships rather than being held directly in their names.

In an interview last month, Duan Weihong, a wealthy Wen family friend, said that the shares in Ping An actually belonged to her and that it was an accident that Mr. Wen’s relatives appeared in shareholding records. The process involved borrowing their government identity cards and obtaining their signatures.

China and Hong Kong have detailed regulations on the disclosure of corporate information deemed material to a publicly listed company’s operation, like the identities of large shareholders and details about whether companies controlling large stakes are related parties. But legal experts say enforcement is often lax, particularly inside China. There is also, they say, a culture of nominee shareholders — when one person holds shares on behalf of someone else — that is difficult for even the most seasoned lawyers and accountants to penetrate.

The Times found no indication such regulations or any law was broken, nor any evidence that Mr. Wen held shares in Ping An under his own name.

After reviewing questions from The Times, the Securities and Futures Commission of Hong Kong and the Hong Kong Stock Exchange declined to comment. The China Securities Regulatory Commission in Beijing did not respond to inquiries.

HSBC, today Ping An’s largest shareholder with about 15.5 percent of its stock, declined to comment. The company announced last week that it is considering selling its stake in Ping An as part of a broad effort to raise capital.

Ping An today is a hugely successful conglomerate with revenue of $40 billion last year and about 500,000 insurance agents across China. It is China’s only fully integrated financial institution, with the second largest insurer, a trust company and brokerage house.

In late 2010, Ping An added more firepower, announcing a $4 billion deal that has since given it control of the Shenzhen Development Bank, one of China’s midsize commercial banks. Ping An is now building a new headquarters here in Shenzhen, a spectacular 115-story office tower that was designed by the New York architectural firm Kohn Pedersen Fox.

Ping An’s Close Call

Ma Mingzhe, the Ping An chairman and chief executive, was a high school graduate who got his start as an aide to Yuan Geng, a pioneering figure in some of China’s earliest economic reforms and an early leader of Ping An.

Impressed with Mr. Ma’s intellect, Mr. Yuan put him in charge of human resources at a state-managed industrial park, and eventually at a new insurance firm, Ping An, which took root in Shenzhen, a coastal boomtown.

Mr. Ma’s timing was opportune. China was just beginning to restructure its state-led economy. The government began dismantling the iron rice bowl system, which had guaranteed pensions, social insurance and living quarters to Communist Party cadres.

Although Ping An was founded as a state entity, it was one of the first Chinese insurance companies to experiment with Western management systems, including the use of actuaries and back-office operations, as well as foreign shareholders.

Mr. Ma helped manage the tiny company when it was founded in 1988. Several years later, he was looking for big-name shareholders from the United States.

In 1994, the private equity divisions of Morgan Stanley and Goldman Sachs each paid about $35 million to acquire 7.5 percent interests in Ping An. At the time, they were the largest foreign investments ever made in a Chinese financial institution.

Much of the company’s early success was attributed to Mr. Ma, a hard-charging executive who was admired for his management and political skills — and for taking risks.

“He had all the qualities of a great entrepreneur,” says Yan Feng, who helped run Ping An’s Shanghai office in the 1990s. “He was a quick learner, knew how to adapt to new situations and was really determined. He’d do whatever it takes to get what he wants.”

But the company’s growth drive ran into trouble in the late 1990s, when China’s economy weakened after the 1997 Asian financial crisis.

The bloated state sector began to collapse, and by 1998, some of the nation’s biggest banks were nearly insolvent.

Ping An’s hard-won fortunes were also evaporating. Like most big Chinese insurers, Ping An had won new clients with investment products that guaranteed big returns over long periods based on the high interest rates banks offered for deposits during a time of inflation. When interest rates plummeted in the mid-1990s, losses piled up.

In 1999, senior executives at Ping An began to acknowledge that the company could soon be insolvent. As a joint-stockholding company, Ping An had big institutional investors, mostly state companies. But many of them refused to come to the company’s aid by purchasing additional shares, which would have provided needed capital.

“They weren’t sure Ping An would survive,” said one former Ping An executive who spoke on the condition of anonymity.

There was also mounting pressure from the government. Worried about systemic risks to the financial system, regulators in Beijing stepped up their enforcement of laws that required financial institutions to limit the scope of their business activities.

Banks were told to sell their stakes in brokerage houses or trust companies; and insurance companies had to choose to operate in life or property insurance, but not both.

After China’s new insurance regulatory agency was established in 1998, it began pressing Ping An to shed its trust and securities business, and to split its life and property insurance divisions into separate companies.

At a news conference in November 1999, Ma Yongwei, then the chairman of the China Insurance Regulatory Commission, said the agency had already drawn up plans to split up Ping An and other insurers.

“The separation plans have been submitted to the State Council for approval,” Ma Yongwei told the media, adding that they would “deepen reform of the insurance system.”