What happened

Shares of Pinduoduo (NASDAQ:PDD) 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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.