What happened

Worries over widespread protests against China's zero-COVID policies, which swept China over the weekend, began to subside Tuesday as the scale of the protests moderated. As a result, multiple Chinese stocks are continuing to head high Tuesday morning.

As of 10:45 a.m. ET, online brokerage Futu Holdings Limited (FUTU 1.42%) stock is up a strong 10.2%, e-cigarette maker RLX Technology (RLX 3.37%) is even higher at 14.7%, and e-commerce site Dada Nexus (DADA 2.15%) is doing best of all -- up 15.8%.

So what

The Washington Post tracked protests ongoing in more than a dozen major Chinese cities last night, but while the protests are ongoing, the Post noted that most demonstrations are now much smaller than what was seen over the weekend. With police stepping in to suppress dissent Monday, the protests have now shrunk to "perhaps dozens of protesters."  

Crucially to investors, China seems to be taking a carrot-and-stick approach to the protests. In addition to the greater police presence, the Post notes that in several locations, local governments have taken steps to loosen anti-COVID restrictions. In Beijing for example, the Post reports that officials have promised not to lock down individual residential buildings for more than 24 hours at a time to tamp down COVID outbreaks. And in Chengdu, the government has shelved plans to build a "mass centralized quarantine" building to house 10,000 persons at a time.

The implication: China's government is taking some initial steps to open up the economy -- and that's likely to be good for business if the government keeps moving in this direction.

Now what

Now what would that mean for Futu, RLX, and Dada Nexus in particular? As the calendar approaches 2023, and investors look ahead to next year's earnings, analysts polled by S&P Global Market Intelligence are forecasting all three of these companies to be at least pro forma profitable -- and for both Futu and RLX to earn profits under generally accepted accounting principles (GAAP) as well. The faster China returns to growth mode, the better these companies' chances to hit these targets and keep investors happy in the new year.

And let's not forget that China's government has strong incentives to begin loosening COVID restrictions, and get its growth going again. According to Reuters, China's COVID-19 restrictions have been a major contributor to predictions that China will post no more than 3.2% gross domestic product (GDP) growth in 2022 -- a huge miss given the government's official growth target of 5.5%, and a rate of growth less than half the 6% and 7% rates of GDP growth that China regularly posted throughout most of the last decade. For China to regain those numbers of yesteryear, it almost certainly cannot maintain its restrictions at their current level of restrictiveness.