China's stock market is being propped up by warnings, liquidity boost, and proverbs.

• Central Huijin has increased its purchases of ETFs linked to China's onshore stock markets to maintain market stability.
• The Chinese securities regulator has issued warnings against "malicious" short-selling to stabilize the market.
• This year, the CSI1000 index has fallen more than 25%, with small- and medium-cap names experiencing the greatest volatility.

The Chinese government has been taking measures to support the stock market, such as increasing market liquidity and issuing warnings against misconduct, while also relying on age-old sayings.

Despite the People's Bank of China's efforts to increase liquidity last month, onshore markets have lost their gains, and there is uncertainty about the effectiveness of this familiar Beijing strategy.

Central Huijin, a unit of the China Investment Corporation, announced on Tuesday that it had increased its purchases of exchange-traded funds linked to the country's onshore stocks to maintain market stability.

China's securities regulator has made efforts to reassure investors by promising to guide institutional investors to increase investment and motivate companies to increase share buybacks.

The China Securities Regulatory Commission issued a warning on Monday against "malicious" short-selling and announced increased scrutiny of margin financing following a volatile trading session. On Sunday, the commission had assured investors that it would protect their interests after onshore markets plummeted as much as 3% before recovering some of those losses on Friday.

The securities regulator issued a warning on Monday, stating that testing the law will result in dire consequences, as depicted in two Chinese proverbs translated literally by CNBC.

The "national team" of Chinese state-linked investors, including Central Huijin, have been employed to shore up the stock market with strategically timed purchases, reminiscent of previous attempts at market routs.

President Xi Jinping's approach to "high quality" financial development emphasizes social stability and a blend of the rule of law and the rule of virtue.

Market volatility

The CSI300 index of Chinese blue chips in Shanghai and Shenzhen increased by up to 1.7% on Tuesday following Central Huijin's announcement, continuing a recovery from five-year lows.

Despite a volatile session that saw the index sink by as much as 2.1%, the benchmark closed up 0.7% Monday. It is still down nearly 5% this year.

Although the volatility has been severe, it has been particularly challenging for small- and medium-cap stocks, which are popular among quantitative hedge funds and other professional investors.

On Tuesday, the CSI1000 experienced a 2.6% increase, recovering from its record low set the previous day. Despite this, it is still down over 25% year-to-date, in contrast to the 4.9% decline of the CSI300.

One of the widely used benchmarks for derivatives, futures, and structured products is the CSI 1000 index of small- and medium-cap names.

Monday, Bloomberg reported that China was tightening trading restrictions for both domestic institutional investors and some offshore units.

In his speech last month, Xi emphasized the importance of financial supervision being "thorny" and sharp, while all efforts should be made to prevent and resolve financial risks, particularly systemic risks, in order to cultivate a financial culture with distinct Chinese characteristics.

Xi will be informed by Chinese regulators about the financial markets' status on Tuesday, as reported by Bloomberg.

The 50 basis points reduction in reserve ratio requirements announced by China's central bank on January 24 took effect on Monday. As a result, 1 trillion yuan ($139.8 billion) in long-term capital will be injected into the market prior to the week-long Lunar New Year holiday.

He emphasized that in risk management, corruption should be punished and moral risks must be prevented.

— CNBC’s Evelyn Cheng contributed to this story.