The announcement of the deal worth more than 22 billion yuan immediately triggered a sharp debate in the mainland media and among investment analysts on whether Ping An had overpaid, if it had enough internal resources, or if there was any synergy.

The controversy now appears to have gone beyond the deal. Dismay has been expressed at the role of the mainland's banking and insurance regulators in the deal.

In addition, the nationalist camp, which is not happy about any foreigner profiting, has begun to make noises about the exit of Newbridge, which expects to reap a handsome gain of more than 300 per cent on its original investment in 2004 and later capital injections.

Investors appear to have initially taken a dim view of the deal. Shares of Ping An in Hong Kong lost more than 11 per cent last week.

Ping An officials launched a public relations offensive, and through meetings and conference calls they gave assurances that the insurer had enough internal resources for the acquisition without making any cash calls on the market. They dismissed criticism that it paid too much for the stake.

But some analysts remain unconvinced, pointing out that Ping An is paying 19 times SDB's expected 2009 earnings. By comparison, bigger and better mainland banks, including China Construction Bank, are currently trading at between 10 and 12 times their expected earnings.

Ping An officials also failed to give a clear idea how the insurer would integrate SDB with its own banking unit, Ping An Bank.

The fact that Ping An and SDB were able to announce the deal means that they must have received tacit consent from the China Banking Regulatory Commission, and also the China Insurance Regulatory Commission, although they need to seek formal approval.

What has annoyed many bankers and analysts is the part of the deal that enables Newbridge to sell 139 million SDB shares that are still under the lock-up period and are not available for sale until next June.

Some bankers have joked that the deal represents the first time the pre-sale practice, common in property sales, has been introduced in the sale of banking shares. SDB has argued that the move is legal because the contractual lock-up of five years only prohibits sales in the open market, and Ping An has argued that it was allowed to make the purchase because it would hold the shares long-term.

But this will set a very bad precedent. Banks introduced the lock-up period with the sole purpose of preventing strategic investors from selling shares before the period expires. If this kind of pre-sale practice is allowed, what is the point of a lock-up period?

Indeed, watching the deal with keen interest are both Goldman Sachs, the US investment bank that still holds shares in the Industrial and Commercial Bank of China, and Bank of America, which has shares in China Construction Bank, in lock-up until next year and 2011.

Little wonder that speculation is rising through the mainland's banking community that officials have been arm-twisted to fast-track the approval, with urging from certain family members of a top government leader. Indeed, some officials are understood to have written letters to the mainland leadership to complain about the way the deal has been handled by the regulator.

More important, they argued that if the deal was approved it would send a confusing message about the direction of banking reform, as the deal would nudge Ping An further towards becoming a financial-services conglomerate, combining banking, insurance and other operations under one roof.

But the issue has long been debated among top officials without any result. While the consensus is that the integration of financial services is a long-term goal, leaders are hesitant, partly because they have deep worries about the weak regulation, particularly so after the global financial crisis, which has hammered many financial conglomerates of integrated services, including Citigroup.

Barring any last-minute surprise, the deal looks set to be approved, but the controversy is expected to linger much longer.