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Pushing Back the Regulators

With his company about to be broken up, Ma Mingzhe, also known as Peter Ma, fired off letters to leaders in Beijing, dictated memos reminding himself to “buy golf clubs” for high-ranking officials, and kept detailed charts outlining the lobbying responsibilities of each top executive at Ping An, according to a copy of those records verified by former Ping An executives.

Mr. Ma focused much of his personal energy on China’s highest government administrative body, the State Council, a 38-member group whose senior leaders were Prime Minister Zhu Rongji and Wen Jiabao, then vice premier. The company also sought the support of Dai Xianglong, the nation’s central bank chief, who also had oversight over the insurance industry.

Mr. Wen was in a unique position. He was head of China’s powerful Central Financial Work Commission, which had been established in 1998 to oversee the country’s banking, securities and insurance regulators, as well as China’s biggest financial institutions.

When Mr. Ma met regulators, he told them his company was facing insolvency and asked them to help shore up the company’s balance sheet by approving a Hong Kong stock offering, according to transcripts of Ping An meetings and interviews with participants.

“Now, Ping An’s life insurance is in a loss, and property insurance and the trust company have thin margins,” Mr. Ma wrote in the Sept. 29, 1999, letter to Mr. Wen. The contents were confirmed by two former top Ping An executives.

Rather than an out-and-out breakup, Mr. Ma offered a middle road. After seeking advice of other investors, Mr. Ma proposed the formation of a holding company that would effectively separate life insurance from property but keep them under one corporate umbrella, along with the securities and trust division.

The company, he said, would re-establish itself as the Ping An Group, according to Ping An documents reviewed by The Times. He then began looking for allies to promote his proposal.

In January 2000, with Mr. Ma’s backing, executives from Morgan Stanley and Goldman Sachs wrote a joint letter to Mr. Wen arguing that a breakup would “violate China’s policy to encourage and protect foreign investment,” according to a copy of the letter reviewed by The Times. The letter’s authenticity was verified by former executives at the two investment banks.

The American investment banks warned that “as a listed company in the U.S., we could be required to disclose our losses relating to the investment in Ping An, which would not be helpful for the image of China’s policy of reform and opening to the outside.”

The letter came after months of aggressive lobbying on the part of Ping An executives and the two American banks to persuade other high-ranking officials in Beijing, including the central bank and the insurance regulator, to hold Ping An together, according to corporate documents reviewed by The Times.

As early as 1999, executives at Ping An also began making contact with the relatives of Mr. Wen.

Hu Kun, a former Ping An employee who served as Mr. Ma’s staff assistant from 1997 to 2000, recalled a 1999 meeting between Mr. Ma and Zhang Beili, the wife of Mr. Wen.

Mr. Hu said he was not told what transpired at the meeting, but he recalled his boss’s reaction. “Because of that meeting, Chairman Ma got very excited,” said Mr. Hu, who is now living in the United States and who has quarreled with Ping An over 52,000 shares he claimed he was owed.

Corporate records reviewed by The Times indicate that Mr. Ma held an afternoon meeting and then dinner with the prime minister’s wife and Li Chunyan, who ran Ping An’s office in Beijing, on June 17, 1999.

It is not known what they discussed, but the relationship seemed to flourish. Around the same time, a diamond company partly controlled by the relatives of Ms. Zhang began occupying office space at the Ping An office tower in Beijing, according to records the diamond company filed with regulators. Later, a start-up co-founded by Wen Yunsong, the son of Ms. Zhang and the prime minister, won a lucrative technology contract from Ping An, according to interviews with former Ping An executives.

Mr. Ma, who is 56 and still runs Ping An, declined to comment for this article. Interviews with four senior executives who worked with Mr. Ma and Mr. Hu at the corporate headquarters in Shenzhen during the same period corroborate Mr. Hu’s recollections and the content of the documents reviewed by The Times concerning Ping An’s lobbying efforts and meetings with the relatives of Mr. Wen.

In addition, Li Chunyan, who ran the Beijing office, confirmed in a telephone interview that during that period he had brought Ms. Zhang to meet the Ping An chairman, Mr. Ma.

The documents and interviews shed no light on whether those meetings played a role in the decision by government regulators to abandon plans to split up Ping An. But in April 2002, the nation’s top regulators delivered their verdict. With approval of the State Council and insurance regulators, Ping An began the process of transforming itself into a financial conglomerate.

The company was not only allowed to retain property and life insurance licenses, but also licenses that permitted it to operate a brokerage and a trust company. It was also allowed to obtain a bank license.

Together, analysts say, the licenses were worth a fortune in China’s tightly regulated marketplace.

“They were one of the few who got to enjoy these gold-digging benefits,” said Bob Leung, a longtime insurance analyst at UBS in Hong Kong.

By late 2002, Ping An had not simply survived the downturn, its prospects had begun to look bright. The company’s restructuring bolstered revenue and profits. In October of that year, one of the world’s biggest banks, HSBC, agreed to pay $600 million to acquire a 10 percent stake in the company from Ping An. Just over a year later, regulators approved the company’s application to list and sell shares on the Hong Kong Stock Exchange.

While Ping An was preparing for its listing in Hong Kong, a group of investors with close ties to senior officials in Beijing, including Wen Jiabao, were quietly accumulating large blocks of Ping An stock.

Buying Into Ping An

On Dec. 26, 2002, Ping An filings show, a company run by Duan Weihong, a Wen family friend from the prime minister’s hometown, acquired Ping An stock through a company called Taihong. Soon after, the relatives of Mr. Wen and colleagues of his wife took control of that investment vehicle, the records show.

According to documents Ping An filed ahead of its Hong Kong listing, Taihong acquired 77.7 million shares of Ping An from the China Ocean Shipping Company, a global shipping giant known as Cosco, and 2.2 million more shares from Cosco’s Dalian subsidiary. A two-for-one stock split doubled the number of shares Taihong owned. So in June 2004, just before Ping An’s Hong Kong offering, Taihong held 159.8 million shares, or about 3.2 percent of Ping An’s stock, according to public filings.

In an interview, Ms. Duan said she had paid about 40 cents a share at current exchange rates, or a total of $65 million, to acquire the shares.

The price seems to have been a huge and unusual discount, analysts say, since HSBC had two months earlier acquired its 10 percent stake for about $1.60 a share, according to public filings.

Cosco did not return calls seeking comment.

For Taihong, it was a blockbuster purchase. By 2007, when the price of Ping An’s stock peaked, the 159 million shares were valued at $3.7 billion — though by 2007 Taihong had already significantly reduced its stake, according to public filings.

While Taihong was the shareholder of record, the beneficiaries of the Ping An deal were cloaked behind more than a dozen investment vehicles controlled by the relatives of Mr. Wen, including two brothers-in-law, a sister-in-law, as well as several longtime colleagues and business partners of his wife, Zhang Beili, according to corporate and regulatory documents. All of them were listed, along with Ms. Duan, as the owners of Taihong.

And by 2007, the prime minister’s mother, who is now 91, was listed on public documents as holding $120 million worth of Ping An stock through a pair of investment companies linked to Taihong.

Ms. Duan, who says she got to know the prime minister’s family in 2000, said that she bought the Ping An shares for her own personal account. The Wen relatives only appear in the Taihong shareholding records, she said, because her company borrowed the government-issued identity cards of other people — mistakenly, she said, from relatives of the prime minister — to help mask her own Ping An stake from the public.

“In the end,” Ms. Duan said, “I received 100 percent of the returns.”

The Fallout

In 2001, China issued new regulations that put restrictions on trading in listed shares by Communist Party members and their families.

For instance, the rules barred party officials in charge of a state-owned company from using their parents, children — or even their children’s spouse’s relatives — to trade stocks of a listed state-owned company.

The Times found no indication that Mr. Wen shared inside information with family members.

But there are many unanswered questions about the relatives’ holdings, analysts consulted by The Times said, like who might have known about the relatives’ purchases and whether anyone had a legal obligation to disclose that information.

Executives at Morgan Stanley and Goldman Sachs say they were unaware of the share purchases and were not involved in the transactions.

The companies also said that a typical I.P.O. process is unlikely to uncover the ultimate identity of shareholders who are hiding behind layers of investment vehicles using unrecognizable names.

According to regulations in Hong Kong and China, publicly listed companies and their professional partners who help sell shares to the public are legally obligated to disclose the identities of only those shareholders controlling a stake larger than 5 percent. The Times found that at its peak, Taihong, the investment vehicle tied to the Wen family, never held more than a 3.2 percent stake.

Another question that remains unanswered is how Taihong was able to buy shares of Ping An at a price that appears to have been highly discounted. By late 2002, Ping An had already become a hot I.P.O. prospect following a big investment by HSBC.

The answers to some of the questions, legal experts say, may turn on who was involved in brokering the deal that led to the relatives’ acquiring shares in Ping An in the period before the company’s public offering in 2004, and whether the deal-makers were seeking to gain favors from the regulators.

“The key questions are: why were these people chosen, and on what terms did they get the shares?” said Jerome A. Cohen, a professor at New York University Law School and an expert on China’s legal system. “Obviously, everyone would like to get in before a hot I.P.O.”