What happened

Despite already having rallied in the early part of the week, Chinese tech companies Didi Global (DIDI 0.22%), Baozun (BZUN -3.33%), and GDS Holdings Limited (GDS 7.94%) skyrocketed again today, up 14.3%, 12.5%, and 8.8%, respectively, as of 1:31 p.m. ET.

Didi is a ride-sharing platform, Baozun is a software and logistics company that helps brands go direct to consumers with e-commerce, and GDS runs data centers for large internet, financial, and cloud companies. The thing they have in common is that they would all benefit from the Chinese government ending its regulatory campaign against its tech industry. While authorities had already signaled they would do so early this week, Wednesday brought another bit of news on that front.

So what

Yesterday, China's gaming regulator approved 60 new video game licenses. This is a big deal, because video games had been one of the hardest-hit sectors by new regulations, after authorities became concerned over addiction among Chinese teens. The pause in gaming approvals had lasted eight months prior to April 30, when the first small batch was approved this year.

The actions seemed to confirm authorities are serious about ending their regulatory assault on the country's tech sector and spurring growth. Earlier this week, Chinese authorities informed Didi that it would be ending its investigation into the company, and that its app would be restored to domestic app stores with the ability to add new users. Shortly after its controversial initial public offering in the U.S., Didi's stock was decimated last July, when authorities accused it of violations of data and safety policies. The Monday announcement was therefore a sigh of relief, and Didi's stock soared, along with many others.

Then today, Didi announced it was in discussions to perhaps acquire a one-third stake in the electric vehicle unit of state-backed automaker Sinomach Automobile. That seems to indicate Didi, the dominant ride-sharing app in China, could be looking to vertically integrate its car service into auto production. It could also be a sign of cooperation between Didi and the government. As part of the end of the regulatory campaign, there is talk of government authorities taking small stakes in leading technology companies, while also having more direct oversight over business decisions going forward.

The lifting of video game approval delays should also benefit GDS, since it runs data centers for large cloud and internet companies. More gaming activity would therefore in theory increase the flow of data and the need for more data centers.

Similarly, Baozun would benefit from government stimulus and increased economic activity. Last week, Shanghai officially emerged from its two-month lockdown, and Beijing has generally pivoted to helping stimulate growth and jobs, rather than restraining them. That would help Baozun, since it is levered to general consumer discretionary purchases in the country.

Now what

Today's action was nice to see, although such broad-based strength across a wide range of Chinese stocks indicates exchange-traded fund buying, rather than investors distinguishing between individual names.

Moreover, risks remain when investing in China. Although the government is now relaxing controls, I would not expect tech company growth to snap back to pre-2021 levels. The government wishes to promote "healthier" growth, which perhaps means a lower-growth industry, without aggressive marketing and price subsidies.

If these companies do accelerate growth in a more profitable way for the long term, this could be the start of another bull market in Chinese stocks, given that most company valuations have fallen so much. On the other hand, with the Chinese government now getting more involved in its private sector, it could also stifle growth.

Also, further deterioration in relations between China and the U.S. can always throw these stocks for a loop. Bargain hunters may want to target the Chinese tech sector today, but do so carefully, and be wary of allocation sizes in your (hopefully) diversified portfolio. Chinese stocks still belong in the high-risk basket.