China's securities regulators are drafting rules to let Chinese firms incorporated overseas float shares domestically as early as the second half of this year, state media said on Tuesday.

"Red-chip" firms -- incorporated and listed in Hong Kong but controlled by Chinese mainland shareholders -- will be the first to use the new rules to list in the mainland, the Shanghai Securities News quoted unnamed industry sources as saying.

But the regulations may eventually also be used by foreign-owned companies to list in China, the newspaper said.

Red-chip listings would help China to meet a key goal of economic policy: expanding its stock market into a major fund-raising source for companies.

In addition, however, regulators may try to use the listings to prevent the market from spinning out of control. The key Shanghai index has more than tripled since the start of 2006.

"This is a policy move, since there are worries that the mainland stock markets are overheated and more supply of stocks could help cool down the heat," said Y.K. Chan, strategist at Phillip Securities in Hong Kong.

The newspaper did not say which red chips were likely to list first in China, but executives of China Mobile Ltd. , the world's largest wireless carrier, said last month they had proposed a domestic listing to Chinese regulators.

The South China Morning Post reported on Monday that China Mobile, computer maker Lenovo Group and oil company CNOOC would be among the first firms, raising between 8 billion and 16 billion yuan (US$1 billion to US$2.1 billion) each.

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