Some suspected Ping An would use the money to acquire banks. Just before the announcement of Ping An's financing plan, China Insurance Regulatory Commission (CIRC) had agreed insurers could invest in convertible bonds with attached warrants and allowed insurers to expand their investments in the overseas market. Sun Jianyong, a senior official with CIRC, said the U.S. subprime mortgage crisis had actually created opportunities for the domestic insurance industry, which could make good use of the opportunity to invest and carry out acquisitions in global market.

Currently, the market values of Citibank and HSBC, which were hit hard by the subprime mortgage crisis, are not high. Their earnings per share and price to book value ratio were just one third of Bank of China and the Industrial and Commercial Bank of China, and were more worthy of investment.

Essence Securities estimated that Ping An could use the money raised to fully control an international financial institution with market value of around $30 billion, or control a company worth $60 billion.

However, Wang Xiaogang, an analyst with Oriental Securities, said it was very likely that Ping An would purchase a domestic bank, and it was a needed step in Ping An's expansion. Wang said it was less likely that Ping An would control a major financial institution.

A Beijing Review reporter contacted Sheng Ruisheng, spokesman for Ping An, but he did not give a specific answer about how the money would be used. Sheng only said the company was holding meetings to discuss details of the financing plan, and the company would give a definite answer to the market after the shareholder meeting in March this year.

Drastic reaction

The market responded angrily to Ping An's plan. By February 1, the price of Ping An in mainland A-share market dropped to 73.99 yuan ($10.27) from the peak of 149.28 yuan ($20.73), and its market value shrank by half. Li Yang said it was totally predictable because there was heavy pressure in terms of money invested in the market. At the same time, the expectation that non-tradable shares would be made tradable in the market also posed heavy mental pressure on investors. Li said Ping An's financing plan was confronted with serious challenges.

Many securities companies complained about the sudden notice of Ping An's plan, and blamed Ping An for not considering the actual situation of the fledgling A-share market. The sharp drop in Ping An's share price showed their anger over the plan.

Wang Yaozhu, researcher with Nanjing Securities, said Ping An's purpose was questionable and the company did not explain why it only chose to raise money in the mainland market instead of the Hong Kong market.

Tao Zheng'ao, analyst with Donghai Securities, said he did not see why Ping An needed to raise so much money and that it was hard to estimate the returns from the money raised. Tao said the losses suffered by international financial giants showed the importance of risk control. Tao suggested Ping An keep cautious of the outward risks.

Still, some securities companies held a positive view about the future development of Ping An. As a subsidiary of Ping An of China, Ping An Securities quickly commented on the financing plan. Its chief financial researcher Shao Ziqin stated that the new financing plan would push Ping An to become an internationally competitive company. In the long run, "Ping An's management team is the best in China and is the most internationalized," Shao said. "We expect Ping An's performance will be good in the future."

Li Yang said even if the money raised was to be invested in overseas acquisitions, the attempt was too risky under the current climate.

Ping An's businesses contain insurance, banking, securities, trust, fund management, health insurance and pensions, though these have developed unevenly. Ping An's profit mainly comes from the insurance side. The combined profits from banking, trusts and securities accounted for less than 1 percent of total profits. Ping An has planned to set up a financial system focused on insurance and banking in five years, but currently there is a gap between the dream and the reality.

Professor Wu Xiaoqiu said that Chinese companies have always been in a rush and wanted to accomplish everything overnight. This heedless ambition could eventually damage investor confidence and the company, he said. "Once investors lose confidence in the market and the listed companies, it will be hard to repair," said Wu.