The China Securities Regulatory Commission (CSRC) is drafting rules to restrain mainland-listed companies from spinning off their major operations for overseas listings, according to a securities industry source. The new policy direction has derailed two mainland firms' Hong Kong listing plans and sparked concerns of a further slowdown of equity market fund-raising at a time when the market is slowly recovering its pre-Sars vibrancy. The CSRC had considered banning spin-offs that account for more than 30 per cent of their A-share parent companies' net profit, turnover and net assets from listing overseas, the source said. Describing the rules as 'work in progress', he said the threshold was subject to change. The CSRC might be concerned that spinning off larger operations for overseas listings could hurt investors in the A-share companies. 'There would be a huge dilution effect for A-share investors,' another investment banker said, citing A shares' much higher valuations than H shares listed in Hong Kong - the preferred destination of mainland firms eyeing overseas stock market fund-raising - as an aggravating factor. Like regulators in other markets with similar curbs, such as Hong Kong, the CSRC is keen to ensure that the spin-off would not leave the A-share parent companies empty shells. 'Considering [our spin-off] contributed a large share of our profits in both 2001 and 2002, the CSRC concluded it was inappropriate to list it [overseas] for the moment,' said a spokeswoman for Shenzhen-listed Changchun High & New Technology Industries. The firm's 59.68 per cent-owned drug-making subsidiary Changsheng Life Science had planned to float on the Hong Kong Growth Enterprise Market, in a deal sponsored by JS Cresvale. Changsheng recorded a net profit of 26.3 million yuan (HK$24.65 million) last year, far more than the parent company's consolidated net income of 7.37 million yuan.