Dai Xianglong's relatives profited from Ping An

Dai Xianglong's relatives profited from Ping An. Interviews related to Shanghai Zao and a review of regulatory filings showed that relatives of a senior regulator in China purchased an insurance company...

Relatives of one of China's top regulators made huge profits by buying shares in a troubled insurance company that has become one of China's biggest financial giants, interviews with Shanghai Zao and a review of regulatory filings show.

This regulator is named Dai Xianglong. He was the governor of the Central Bank of China in 2002 and had regulatory authority over the insurance industry. At that time, a company his relatives helped control bought a large stake in Ping An Insurance Company. A few years later, the value of these shares reached billions of dollars. Ping An, which escaped bankruptcy a few years ago, was recruiting new investors and subsequently holding an initial public offering.

The outside world is increasingly paying attention to the wealth accumulated by prominent Chinese political families. At the same time, the investment behavior of Dai Xianglong's relatives shows that wealth has extended from the families of political elites to the families of some regulators, who hold the most important power in China's business and financial fields. Dai Xianglong, an economist, later stopped serving as central bank governor and now manages one of the world's largest investment funds, the US$150 billion (approximately 934.8 billion yuan) China Social Security Fund.

It is not clear how much profit his relatives made from the deal, but analysts said the transaction raised doubts about whether China's capital markets were effectively regulated.

Nicholas C. Hao Shan (Nicholas C.), an expert on Chinese securities law at the University of Michigan Law School "These transactions are not themselves illegal or even evidence of corruption, but they contribute to the spread of a worrying perception within China that the families of China's most senior officials have privileged access to assets that have not yet held an IPO," said Howson, referring to China, using the abbreviation of the People's Republic of China, its official name.

Regulatory filings show that the company that purchased Ping An's shares is controlled by a number of investment companies, including two companies founded by Dai Xianglong's son-in-law Che Feng, as well as other companies related to Che Feng's relatives and business partners.

Records show that when purchasing Ping An shares, the company called Dinghe Venture Capital Co., Ltd. received an extremely favorable price. The price per share was only a fraction of the purchase price of a major British bank just two months ago. On December 26, 2002, Dinghe spent US$55 million to purchase shares of Ping An. By 2007, the last time the value of the investment was publicly disclosed, the shares were worth $3.1 billion.

During the investigation of this matter, this newspaper found that there was no sign that Dai Xianglong knew about his relatives' behavior, and there was no sign that there was any illegal behavior in the transaction. But it appears the relatives did make fortunes by investing in financial services companies under Mr. Tai's supervision.

Another relevant example is that according to the prospectus of Haitong Securities in Shanghai, Dinghe acquired a large number of shares in the company in November 2002. Haitong was also under Dai Xianglong’s supervisory authority at the time.

Public filing materials show that by 2007, when Haitong was first listed in Shanghai, the value of the shares purchased by Dinghe was approximately US$1 billion. Since then, Dai Xianglong’s wife Ke Yongzhen served as chairman of Haitong’s supervisory board from 2007 to 2010.

Spokespeople for Dai Xianglong and the National Social Security Fund (National Social Security Fund) did not return calls seeking comment. A woman who spoke on behalf of Dai Xianglong's son-in-law, Che Feng, denied via email that Che Feng had ever held shares in Ping An. The woman said that another businessman bought Ping An's shares, and that person resold the shares to other people due to financing difficulties. These people included Che Feng's relatives and friends, but did not include Che Feng himself.

The aforementioned businessman “had no money to take care of the industry he created, so he sold all his shares at once,” the woman named Jenny Lau said in an email.

However, company records reviewed by this newspaper show that Che Feng worked with relatives and long-term business partners to form a complex network of companies that gave him and others effective control of Dinghe Venture Capital, which invested in securities of Ping An and Haitong. Records also show that one of the companies later nominated Che Feng to be a supervisor on Ping An's board of supervisors, serving from 2006 to 2009.

Last month, this newspaper reported that in 2002, on the same day that Dinghe Company purchased Ping An's shares, another investment company also purchased Ping An's shares at an unusually low price. This company was Tianjin Taihong Company, which was later partially controlled by Wen Jiabao's relatives when he was vice premier in charge of China's financial institutions. At the end of 2007, the value of Taihong's shares in Ping An was US$3.7 billion.

> The investment activities of Dinghe and Taihong are significant, in part because by late 2002, regulators in Beijing had given Ping An extrajudicial favor, allowing the company to sell off parts of its business without being required to do so. In the late 1990s, Ping An had been resisting regulations requiring separate operations because Ping An executives worried that divesting businesses would lead to the company's bankruptcy.

It is unclear whether Wen Jiabao or Dai Xianglong intervened on behalf of Ping An, but in April 2002, the company obtained permission to reorganize and retain its securities and trust businesses. Two years later, Ping An launched its first public offering of shares in Hong Kong. In 2007, after Ping An was listed in Shanghai again, the company's stock price soared. Today, Ping An ranks among the world's largest financial institutions, with a company value estimated at $65 billion.

Before the regulators decided to exempt Ping An, Ping An’s executives and investment bank shareholders had vigorously lobbied regulators, including Dai Xianglong.

This newspaper reviewed some copies of letters written to Dai Xianglong. One of the letters came from Ma Mingzhe, chairman of Ping An. In the letter, he asked Dai Xianglong to approve Ping An's overseas listing in 1998, emphasizing that "it will be very difficult to raise such a huge amount of funds domestically."

Regulatory filing documents show that when purchasing Ping An shares, Dinghe Company, which is partially controlled by Dai Xianglong’s relatives, received an extremely favorable price. Public filings and reports in a state newspaper show that in December 2002, Dinghe purchased about 66.5 million shares of Ping An from state-owned shipping giant China Ocean Shipping (Group) Corporation (COSCO), at a price of $0.40 per share after the stock split. Taihong Company, which is related to Wen Jiabao's relatives, also purchased Ping An shares at this price.

This price is far lower than the price at which HSBC purchased 10% of Ping An's shares in October of the same year. At today's exchange rates, HSBC paid $1.60 per share.

It is unclear why COSCO sold Ping An shares at such a low discount. Cosco did not return calls seeking comment. A Ping An spokeswoman also did not return calls.

Dai Xianglong is 68 years old and has long served as a government regulator and a senior executive of a state-owned enterprise. He has held senior positions at the Agricultural Bank of China, China Pacific Insurance and, in the early 1990s, the Bank of Communications. Haitong Securities, which was affiliated with the bank at the time, was within his jurisdiction.

In 1995, he was appointed governor of China's central bank, one of the most powerful positions in the country's financial sector. In December 2002, he resigned and became mayor of Tianjin. Next, he became chairman of the National Council for Social Security Fund in 2008. For much of his career, he has developed close relationships with some of China's top leaders, including Wen Jiabao, both of whom served on the powerful Central Financial Work Commission. The committee oversees China's banking, securities and insurance regulators, as well as China's large financial institutions.

Large financial services companies have also sought Dai's help as they seek to grow amid China's strict regulatory environment. For example, relevant records reviewed by this newspaper and an interview with a former assistant of Ma Mingzhe showed that the name of Dai Xianglong, his wife and son-in-law were listed in the phone book of Ma Mingzhe, the long-time chairman of Ping An.

In addition, Li Chunyan, who once served as director of Ping An’s representative office in Beijing, said in a telephone interview last month that he had arranged for Ma Mingzhe to meet with Dai Xianglong’s relatives, including his son-in-law Che Feng.

"You can't say that I am the introducer, I just take them there to meet," he said, but refused to disclose specific details. "I'm just a small person, you know." He added, "I'm quite familiar with President Dai Xianglong's family."

Later, at the National Council for Social Security Fund, Dai Xianglong began to supervise a huge fund, which had invested in shares of Haitong and Ping An. In September, the government-controlled social insurance fund announced it would invest $3.6 billion in 16 private equity funds, including New Horizon Capital, whose founders include Wen Yunsong, the only son of Premier Wen Jiabao.