Data from China Securities Depository and Clearing Corp — the nation's clearing house for stock transactions — showed that more than 3.8 million stock trading accounts had been closed from January to June.

On the other hand, some people are now preparing to enter the market.

"It's always a good time to bet when the majority of investors are losing faith. I believe that some blue-chip stocks are very cheap now. The market cannot stay bad forever," said Echo Xie, who works for a multinational IT firm.

The benchmark Shanghai Composite Index rose 0.57 percent on Tuesday to reach 2,006.56 points, surpassing the psychologically important 2,000 mark. Turnover increased to 74 billion yuan from 62.7 billion yuan on Monday.

Analysts remain cautious and are not saying that this is a bear market just yet. Most are confident about China's central government's fiscal position and its ability to stimulate the economy.

Merrill Lynch said in a report released on Monday that it sees more downside risks than before, but added that a downward revision of the country's GDP growth is not justified yet for two reasons.

"First, the central bank has already committed to ending the interbank liquidity squeeze and the State Council has come out asking for growth stability. Second, we expect the deleveraging of small banks in coming months to have a limited impact on system-wide credit supply as big banks could fill the gap," the report said.