What happened

Shares of DiDi Global (DIDI 2.33%), Full Truck Alliance (YMM 3.03%), and Kanzhun (BZ 2.68%) rocketed higher this week. Through the end of trading Thursday, DiDi was up 27.6%, Full Truck Alliance was up 17%, and Kanzhun was up 9%, although Kanzhun had been up 23.9% at its highs.

One can chalk up this week's gains to a Wall Street Journal report saying that China would be winding down its investigation into each company, and allow each of their apps back in the country's app stores to resume adding new users (according to unnamed sources familiar with the matter). Given that each stock had sold off so much over the past year after their initial bans, it's no wonder shares surged higher on the news.

Full Truck also reported its first-quarter earnings, which gave the stock an extra boost in the middle of the week.

So what

A little less than a year ago, Chinese authorities launched an investigation into DiDi, maker of the country's largest and dominant ride-hailing app, and banned the app from the country's app stores. The measures were supposedly taken because of the improper collection of personal user data, as well as DiDi's having listed on the New York Stock Exchange (a subsidiary of Intercontinental Exchange).

Shortly thereafter, Chinese regulators launched investigations into and banned Full Truck's truck-hailing apps, which connect shippers and independent truckers, and Kanzhun's app, an online recruiting platform. Chinese authorities seemed to want any company that collects lots of user data to list somewhere that isn't the U.S., for fear of having to share data with U.S. financial authorities. DiDi has since announced plans to list its shares in Hong Kong and delist from the NYSE. Full Truck also announced its intention to do the same.

Since then, however, China's economy has slowed considerably, with the popping of its property bubble last summer, the ongoing crackdown on its technology sector, and the imposition of lockdowns in Shanghai in March. In a recent poll conducted by Reuters, economists estimated that China's gross domestic product (GDP) grew 4.4% in the first quarter, well below the country's 5.5% growth goal at the start of the year.

It appears China's regulators overplayed their hand, as layoffs and economic slowing were more severe than they expected. With authorities now increasingly worried about jobs and growth, it seems they have decided to pivot to support the tech sector's growth and jobs.

While all three companies will see their apps restored, people familiar with the matter say DiDi will have to pay a large fine, while Kanzhun and Full Truck pay relatively lenient ones. There is also speculation that the government may take 1% stakes in certain companies, while asserting more direct oversight of business decisions.

Finally, Full Truck Alliance reported Q1 earnings this week, in which it displayed impressive 53.7% revenue growth to $210.2 million, with a net loss of just $30.3 million. Apparently, investors were reassured by the company's resilient growth amid challenging financial conditions, as the stock rose again on Wednesday after the report. For the second quarter, which saw the full brunt of the Shanghai lockdowns, Full Truck projects 39.4% to 46.3% growth, showing solid execution despite the difficult environment.

Now what

If you happen to own shares in these companies, they're likely to be delisted soon; however, that doesn't mean you'll lose your holdings. DiDi has announced plans to allow current shareholders to swap their U.S. shares for new ones when the company relists in Hong Kong. The timing of that may be in question, but the conclusion of this investigation should make a Hong Kong listing easier.

However, if there's a lag between the time DiDi delists from the NYSE and relists in Hong Kong, its shares may trade over the counter, where liquidity is lower; the same goes for Full Truck Alliance. In other words, the swap should work out OK for current U.S. shareholders, but there's still some lingering risk.

While Full Truck's results have remained solid and DiDi looks set for a turnaround, there are still considerable risks over the long term, given the mercurial actions of the Chinese Communist Party. These stocks could be promising turnaround candidates, given how far they've fallen. Still, they're still probably too risky for any investor not very knowledgeable about U.S.-China relations. Given the lower prices across all stocks this year after the market sell-off, there's no need to dive into these riskier Chinese names.