The screen in Shanghai shows the Shanghai Composite Index, which rose 0.78 percent to 2,962.24 points on October 24, 2023. Photo: VCG

Chinese mainland stocks rallied on Tuesday after a significant fall last week, as investors took heart from growing signs of more policy support for the financial markets as well as the recovery of the Chinese economy. 

Market expectations are also improving after the Chinese economy gained momentum in the third quarter with a forecast-beating GDP growth rate. To further consolidate the economic recovery, Chinese policymakers are likely to take more steps to boost various aspects of the economy, including the capital markets, analysts said.

On Tuesday, Chinese President Xi Jinping stressed rallying individuals in the private sector around the Party more closely and breaking new ground in the work of federations of industry and commerce, in a congratulatory letter sent to the All-China Federation of Industry and Commerce on its 70th founding anniversary, according to the Xinhua News Agency.

The remarks offered a fresh major boost for the country's vast private sector and will further help improve market expectations and confidence in the recovery of the economy, analysts noted.

Market expectations have shown signs of improving. On Tuesday, major Chinese mainland stock indexes all rose, with the Shanghai Composite Index gaining 0.78 percent, the Shenzhen Component Index rising 0.61 percent, and the tech-heavy ChiNext index gaining 0.85 percent. 

The gains on Tuesday, while moderate, were significant given that Chinese mainland stocks had been on a downtrend in recent days. On Friday, the benchmark Shanghai Composite Index fell below the major psychological level of 3,000 for the first time since October 2022, prompting widespread speculation about weakened investor confidence and foreign media slander about the health of China's stock market and the Chinese economy as a whole.

Tuesday's rebound underscores improving market sentiment following several support measures, Yang Delong, chief economist at Shenzhen-based First Seafront Fund Management Co, told the Global Times on Tuesday. 

Markets were boosted by an overnight statement from Central Huijin Investment, a state-owned investment company, which vowed to continue to increase purchases of exchange-traded funds (ETFs). "Huijin bought ETFs today and will continue to increase its holdings in the future," the company said in a one-sentence statement. 

The move adds to growing signs of national support for the country's capital markets, "which effectively helps boost market confidence," Yang told the Global Times on Tuesday, noting Huijin's earlier purchases of shares of major state-owned banks. 

On October 11, Huijin bought more than 100 million shares worth about 477 million yuan ($65.2 million) of four top Chinese banks, and said it would continue purchases in the next six months. This marked the first purchase for Huijin in eight years.

In addition to increased holdings by the state-owned firm, there are growing expectations for more policy measures to support the economic recovery. 

Given that the economy remains in the recovery phase, "in the next step, major developments could be expected in terms of policy support," Yang said, adding that policy measures are needed to address concerns in areas such as the real estate market. 

Chinese policymakers are moving swiftly to tackle these issues. Following many measures to stabilize the housing market, the National Development and Reform Commission (NDRC), the top economic planning agency, on Monday held a meeting on promoting infrastructure real estate investment trusts (REITs) projects. 

So far this year, 41 projects have been recommended and 21 projects are being commissioned for evaluation, and the market of infrastructure REITs is expected to expand significantly, the NDRC said.

In another move to boost investment, the NDRC and other ministries on Tuesday issued an action plan to promote the construction of outdoor sports facilities and improvement of services, pledging increased investment.

More policy support is expected during the rest of the year to further consolidate the solid economic recovery that began in the third quarter, according to Tian Yun, a Beijing-based economist. 

"If the intensity of policy support is sufficient and implementation of policies is effective, confidence in economic development will further improve and GDP growth in the fourth quarter could reach 5.5 percent," Tian told the Global Times. 

GDP grew by 4.9 percent in the third quarter, beating various forecasts and showing that the economic recovery gained momentum despite various challenges and pressures.