More than 100 companies still have more than 50 percent of their shares pledged, according to Reuters analysis of official data, despite a cap fixed at that level which was introduced two months ago.
The practice of borrowing against big blocks of shares - also known as margin lending - jumped sharply last year in China as company founders and large shareholders used rising markets to fund loans for personal use or company business. The loans are advanced at a discount of as much as 50 percent to the market price of the collateral.
Large pledges can risk destabilising markets if borrowers cannot meet margin calls following price moves, leaving lenders free to dump the collateral - and to trigger a change of company ownership if the shareholding is large enough.
China's securities regulator introduced new rules in March that prevent any transaction from raising the proportion of pledged shares to above 50 percent of total shares.
But in spite of new restrictions, including on brokers' exposure as well as the 50-percent cap, a total of 131 companies with a combined market capitalisation of 2.04 trillion yuan (236.27 billion pounds) still had more than 50 percent of their shares pledged as of the end of April.
Since the beginning of 2017, the number of listed Chinese firms with more than half their shares pledged has risen by 48 percent, according to analysis of China Depository Securities and Clearing data.
"A large number of listed firms changing ownership could cause instability in daily operations, which in turn could have a negative impact on share prices," said Meng Shen, director of Chanson & Co, a boutique investment bank.
Controlling shareholders of at least 24 listed firms had pledged at least 90 percent of their shares as of early May, according to Reuters analysis of market data, heightening the risk of a change of control if markets fall.
Share-backed lending is common around the world, particularly in emerging markets where many companies are controlled by founding families.
Hong Kong regulators are also concerned about the scale of the borrowing. Julia Leung, deputy chief executive of the Securities and Futures Commission, said last week that there was HK$206 billion ($26.24 billion) worth of margin loans outstanding at the end of 2017, a nine-fold increase since 2006.
"It is not only the amount, but also the quality of the collateral that is concerning us," she said.
Leung added that the watchdog was particularly concerned about borrowers pledging shares from smaller, thinly-traded companies. That can leave markets vulnerable to sharp unexplained price moves and also gives lenders less security in the event of company difficulties.
In the mainland as in Hong Kong, the use of pledged shares has been most pronounced among smaller firms, who often have less access to bank credit.
A total of 54 companies listed on Shenzhen's tech-focused ChiNext board or its small and medium-sized enterprise board had more than 50 percent of their shares pledged - up 38 percent from 2016, when the practice waned following China's market crash in 2015.
Banks this year began tightening lending standards ahead of the rule changes, following a stock market tumble in early February that saw shares suffer their worst one-day fall in almost two years.
China Merchants Bank, the country's fifth-largest listed bank by market value, was one lender that did so, said two people with direct knowledge. "The discount of 30 to 50 percent remains the same, but it's tougher for an enterprise to qualify for this sort of loan," said one of the people, adding that some smaller companies were now unable to get them.
(Reporting by Engen Tham and Andrew Galbraith in Shanghai; Additional reporting by Alun John in Hong Kong and Shanghai newsroom; Editing by Jennifer Hughes and Philip McClellan)
By Engen Tham and Andrew Galbraith