What happened

Shares of Pinduoduo (PDD 2.28%) were surging today, although there was no company-specific news on the stock. Instead, shares of the social commerce specialist seemed to be gaining on China's announcement Monday that it would change its two-child policy to a three-child policy, encouraging larger families.

As a result, the stock finished the day up 11.6%.

An Asian man delivers a package to someone signing on their smartphone

Image source: Getty Images.

So what

As a social e-commerce business, Pinduoduo encourages shoppers to form buying groups to get discounts, a model that should naturally benefit from increased family sizes, which should also favor online shopping in general.

Chinese baby and maternity stocks soared on the news, and e-commerce peers like Alibaba Group Holding and JD.com also posted gains.

Last week, Pinduoduo posted another round of blistering growth in the first quarter with a 239% revenue hike to $3.4 billion, and a 31% increase in active buyers to 823.8 million. The company continued to post losses on the bottom line, but did narrow its adjusted loss by about 40% to $288.5 million.

Now what

Founded in 2015, Pinduoduo has quickly emerged as a challenger to Alibaba and JD.com, the two largest e-commerce platforms in China, thanks to its rapid growth and the popularity of its social commerce model. The stock has been a big winner on the market since its 2018 IPO, but is down about a third from its peak in February due to a broader rotation out of growth stocks .

The news about China's three-child policy is a reminder that there's still plenty of growth left in the Chinese market for companies like Pinduoduo.