File photo: Xinhua

The Chinese stock market saw a moderate drop on Wednesday following the five-day May Day holidays, with investors weighing optimism over improving global COVID-19 prevention and control. 

However, growing divergence and diplomatic tensions between the US and China over trade and coronavirus source will continue to cloud the market performance, analysts say. 

On Wednesday's opening, the benchmark Shanghai Composite Index edged down 0.99 percent, the Nasdaq-style ChiNext dropped 0.82 percent, and the Shenzhen Component Index declined 0.97 percent. 

Shares later pared earlier loss, led by the auto and semiconductor sectors, with the ChiNext gaining 0.3 percent as of 10:30 am. The Shenzhen Component Index rose 0.15 percent and losses in the Shanghai market narrowed to 0.3 percent.

On Tuesday, the Semiconductor Manufacturing International Corporation (SMIC), the country's leading chip maker was reportedly considering to be a viable alternative to Taiwan-based semiconductor manufacturer TSMC. SMIC said it will apply to list on the Shanghai Sci-Tech Innovation Board (STAR Market). The initial issuance will not exceed 1.686 billion shares, and funds raised will be used to invest in projects including a 12-inch chip SN1 project.

During the five-day holidays - the first long holiday since the COVID-19 is brought under firm control in the second-largest economy - China's gigantic consumption market saw a strong rebound, which is a bullish sign for the economy.

China saw a total of 115 million domestic tourists and realized domestic tourism revenues of 47.56 billion yuan during the May Day holidays, official data showed.

However, Citic Securities said that anti-virus control had constrained a full consumption rebound during the holidays and a real recovery is expected before the National Holiday which starts on October 1.

With a list of macroeconomic policies likely to be implemented during the two sessions in late May, the Chinese economy is expected to continue its recovery and the A-share market will also continue its rebound in the second quarter this year, according to an analysis from Zhongtai Securities on Wednesday.