Chinese shares tumble after 'unverified' SOE consolidation

However, investors, especially small ones, suffer from the sharp decline should such information be proven wrong or institutional investors suddenly sell stocks to cash in.

Despite repeated CSRC warnings that stock trading is risky, Chinese investors are flocking to the equity market for quick returns, with new trading accounts soaring by 433 percent year on year in the first quarter to reach almost 8 million.

Ha Jiming, chief investment strategist for the investment management division of China at Goldman Sachs, said stocks were one of few ways left for investors to make money as the lackluster real economy provides few opportunities.

For a healthy stock market with long prosperity, Hu said the government should continue to deepen reform and public companies should try to improve their profitability.

"These are the fundamentals of a sound market," he said.