What happened

Many Chinese stocks rose after protests broke out earlier this week over China's zero-COVID policies, which seemed to lead to the Chinese government beginning to ease restrictions.

For the week, shares of the Chinese tech company and search engine Baidu (BIDU -0.41%) traded close to 17% higher as of 3:03 p.m. ET Thursday, according to data provided by S&P Global Market Intelligence.

Meanwhile, shares of the Chinese electronic vaping company RLX Technology (RLX -0.55%) traded roughly 21% higher, while shares of the Chinese fintech company Lufax Holding (LU 3.81%) were up close to 26%.

Line moving up and to the right.

Image source: Getty Images.

So what

The week has largely been positive for Chinese stocks, with investor sentiment turning bullish after what's been a difficult year for the sector.

However, there's also been a good deal of turbulence in China, as recent protests over the restrictive COVID policies that forced people to lock down many times since the pandemic began turned violent in certain parts of the country.

In recent days, the Chinese government has relaxed temporary lockdowns in several major Chinese cities, including Guangzhou, where there were violent protests, and some parts of Beijing and Shanghai, as well as other areas.

The Chinese government also announced that some people who test positive for COVID will be allowed to quarantine at home and that the government plans to reduce the frequency in which it conducts mass testing, despite COVID cases still being relatively high.

In more company-specific news, Baidu announced plans earlier this week to build the largest self-driving, ride-hailing fleet in the world in 2023 in order to serve more customers. While the company didn't specify how big its ride-sharing fleet could get, it has said previously that it is aiming to have 600 robotaxis up and running by the end of this year.

Additionally, Baidu announced new technology for its robotaxis that will allow it to recognize and identify more objects it encounters and handle more scenarios on the road.

Although shares of Lufax moved higher this week, the company also suffered a setback when Morgan Stanley analyst Richard Xu downgraded the stock from an overweight rating to equal weight due to concerns over credit quality.

Xu cited "worse-than-expected credit quality deterioration in 3Q22, which we believe will lead to greater uncertainty on its loan volume... and ultimately its net take rate."

Now what

While there is still uncertainty in China, the government does seem to be turning the corner when it comes to restrictive COVID policies. Furthermore, it would also appear that more stringent regulatory policies are now mostly in the past as well.

While the COVID situation will likely continue to go back and forth for the foreseeable future, the Chinese economy has really struggled this year due to lockdowns, and it's clear that President Xi Jinping is trying to turn things around.

Due to the volatility in the sector, I would recommend larger, more established Chinese stocks that can do their best to avoid costly regulation and regulatory fines. Of this group, I like Baidu the best. I would not recommend Lufax due to its exposure to the Chinese consumer, or RLX Technology due to recent new taxes on the manufacturing or import of vaping products.