A late rally saw the Chinese stock market rebound to finish more than 2.5% higher after a volatile day of trading.
About 80% of Chinese shares are owned by ordinary citizens
The benchmark Shanghai index had continued to slide for much of the day, with investors worried Beijing might bring in further plans to slow growth.
The index ended 2.63% up at 3,767.10, after having lost as much as 7%.
This followed Monday's record 8.3% fall - as investors offloaded stocks in reaction to government plans to cool the economy.
The volatility in the Chinese stock market does not appear to have had a knock-on effect on other markets - in contrast to February, when Chinese market falls caused jitters around the world.
In the US, the Dow Jones closed at record high on Monday, adding 8.21 points to 13,676.32.
In Japan, the benchmark Nikkei 225 share index was up 73.3 points at 18,046.7 in late trade.
Despite Monday's record fall in China, which followed a dramatic slide last Wednesday, analysts say they expect the trend to be short-lived.
China has been embarking on a range of economic measures in a bid to slow runaway economic growth, including raising a tax on stock trades 0.1% to 0.3%.
Strong demand from domestic investors has lifted Chinese stocks in recent months.
However, some analysts have warned that a stock market bubble is being created, and former Federal Reserve chairman Alan Greenspan warned that the Chinese stock market could undergo a dramatic correction.
One of the main factors behind the surge in shares has been a willingness among ordinary people, such as students and pensioners, to buy shares.
Instead of leaving their savings in bank accounts, many people are now using the cash to buy shares in the hope of receiving better returns.
Recent figures suggest that about 300,000 people each day have been opening brokerage accounts in China.
The Shanghai index has risen by more than 50% since the beginning of the year.