The unexpected stock market plunge early in 2008 caught the Chinese investors on the wrong foot. What's worse, Ping An Insurance's (SH. 601318, HK. 2318) plan to raise 160 billion yuan ($22.22 billion) infuriated both institutional and private investors, dragging the market down further as it suffered the biggest weekly loss in a decade.

On the night of January 20, Ping An Insurance announced that its board of directors had approved a plan to raise capital in the mainland A-share market. Ping An said it would issue 1.2 billion new shares as well as up to 41.2 billion yuan ($5.72 billion) in convertible bonds attached with warrants in what would be China's largest and one of the world's biggest fund-raising plans. It was reported that the money raised would be used for Ping An's overseas acquisitions.

Previously, the two largest A-share market fund raisings were PetroChina's 66.8 billion yuan ($9.28 billion) and Shenhua Energy's 66.58 billion yuan ($9.25 bilion). But Ping An's new plan would probably surpass the aggregate amount of the two--equivalent to creating a new Ping An in the A-share market.

The announcement triggered the stock market to plummet further. In 10 trading days from January 21 to February 1, the benchmark Shanghai Composite Index dropped to 4320.77 points from 5188.79 points, down 17 percent, causing fears of a bearish market.

"If there was no such announcement, the market would not have suffered so heavily," said Sun Peng, analyst with CITIC's China Securities Research. "The large-scale capital re-raising brought enormous influence on the stock market, causing panic selling and hitting hard at the investor confidence." Sun said that unless there were better measures to save the market, the future of the market could be in jeopardy."

A devastating sum

Ping An Insurance, the first joint-stock insurance company in China, is also the fastest developing one. In April last year, the company ranked 36 among 114 insurers of the Forbes Global 2000. It also ranked the first among all Chinese non-state enterprises on the Forbes list.

Open data from Ping An showed that it raised 32.2 billion yuan ($4.47 billion), excluding distribution fees, in its mainland initial public offering (IPO) in March last year. The money was in turn used to invest in the company's capital fund. By the middle of last year, the actual capital fund had reached 7.345 billion yuan ($1.02 billion), double what it was at the end of 2006. Meanwhile, Ping An's net profits grew 104.4 percent in the first half of 2007 year on year. Therefore, the new financing effort was not meant to bring more money into the capital fund, but to carry out Ping An's overseas expansion ambitions.

Investors criticized Ping An's extraordinary financing plan. Wu Xiaoqiu, financial professor of Renmin University, blamed Ping An publicly, arguing that the multi-billion financing "was irrational, crazy and hard to understand."

Ping An's announcement said the money raised would be used to enrich the capital fund of the company, as well as invest in investment projects approved by relative departments.

Industry insiders question the latter purpose. Li Yang, a Beijing securities analyst, contended that Ping An was "a mature company, and the multi-billion dollar financing plan must be backed by some government departments." Li said any financing plans raised by big industry giants must seek permission from the government.