By delisting in New York or Hong Kong to relist in China, firms can enjoy much higher valuations, a premium analysts ascribe to the difficulty of negotiating China's regulatory framework to get a listing, which creates a shortage of stocks to meet rising local demand.

"An overseas-listed Chinese company, once listed in the domestic market, will become the target of speculation and see its valuations surge, even if its business is mediocre," said Michael Yuan, founding partner of Shanghai-based Pegasus Corporate Advisory.

New listings in China typically rise more than 40 percent on their first day, and an alternative "reverse merger" tactic - arranging for a locally listed shell company to buy assets from the overseas listing - also reaps big gains.

Shares in Chongqing New Century Cruise (CNCC) (>> Chongqing New Century Cruise Co Ltd) surged sevenfold in a month after Giant Interactive Group, a Chinese online game developer that left New York through a $3 billion (2.23 billion pounds) privatisation, injected its assets into Shenzhen-listed CNCC.

The securities regulator says five overseas-listed companies have returned to the domestic market in the last three years, and investment bank CICC says at least 39 have announced plans to go private since 2015, including Ku6 Media Co Ltd (>> Ku6 Media Co Ltd (ADR)) and iDreamsky Technology Ltd (>> iDreamSky Technology Ltd (ADR)).

Companies relisting in China are raising money to buy back their overseas listings through a complex series of funds.

At the top of the chain are company founders and senior executives, who set up special purchase vehicles (SPVs) to raise money from outside investors.

Asset management firms buy rights to invest in the SPVs, then launch related funds that individuals or groups can buy into, subject to a typical minimum investment of 1 million yuan ($150,000).

BIG RETURNS

Shanghai-based wealth management firm Trust Wealth is selling a fund to invest in the relisting of Bona Film Group Ltd, predicting returns of 500-800 percent in three to five years, it told clients last month. It charges 2 percent in both subscription and management fees and keeps up to 20 percent of investors' gains.

Private equity (PE) firm Perfect Capital is pitching to clients a fund aiming to profit from the relisting of Hong Kong-listed Dalian Wanda Commercial Property (>> Dalian Wanda Commercial Properties CoLtd).

According to the sales pitch, retail investors can make as much as 38.4 percent a year over three years in a rising market, and 18.5 percent in a flat market.

Ten mainland-listed companies say they are also investing in such schemes, including CITIC Guoan Information Industry Co (>> CITIC Guoan Information Indust. Co., Ltd), Shandong Tyan Home Co Ltd (>> Shandong Tyan Home Co., Ltd) and Hunan TV & Broadcast Intermediary Co Ltd (>> Hunan TV & Broadcast Intermediary Co Ltd).

Some distribution networks for such products can go five layers deep, generating hefty fees for fund managers at each level, marketed via email, online platforms or instant messaging chat groups.

The privatisation of Qihoo 360 Technology Co (>> Qihoo 360 Technology Co Ltd) is another popular target; Chinese PE firm Aeternam Stella said it completed fundraising of nearly 700 million yuan in April.

"In the backdrop of an acute shortage of quality assets, Qihoo 360's privatisation scheme attracted feverish demand. Some institutions even received subscriptions that were 20 times more than the stakes available to them," it said.

Shandong Tyan Home Co Ltd (>> Shandong Tyan Home Co., Ltd) said in April it had invested nearly 700 million yuan in a Qihoo-linked fund.

But such schemes are not a one-way bet, and regulators are concerned that retail investors could be in over their heads.

This month the stocks regulator said it would tighten rules on restructurings by listed companies to curb speculation around shell companies, after saying in May it was analysing the impact of relistings and the valuation gap between domestic and overseas stocks.

Since then, U.S.-listed Chinese video streaming website operator YY Inc (>> YY Inc (ADR)) has become the first to withdraw its privatisation plans, citing “unfavourable market conditions”.

(Reporting by Pete Sweeney and Samuel Shen; Editing by Will Waterman)

By Samuel Shen and Pete Sweeney