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Wed, Dec 20, 2006 - Page 10 News List

EBay to shut China site, join local firm

PARTNERSHIP A source said that the US company would invest US$40 million for a 49 percent stake in Tom Online after losing market share to rivals that provide free services

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EBay Inc will close its primary China Web site and form a partnership with Tom Online Inc after losing users to rivals in the world's second-biggest Internet market, a person familiar with the matter said. Tom Online shares were suspended, pending an announcement.

The world's largest online auctioneer will pay about US$40 million for a 49 percent stake in the venture with Beijing-based Tom Online, an Internet company controlled by Hong Kong billionaire Li Ka-shing (李嘉誠), said the person, who declined to be identified because the agreement isn't public.

EBay is abandoning its own China site after five years of operation during which time the San Jose, California-based company lost market share to rivals that offer free services.

The US online auctioneer started operating in China in March 2002, when it closed its Japan site and a month after it entered the Taiwan market. EBay shut its Taiwan site in June to form an auction venture with PC Home Online (網路家庭).

"EBay is another example of how hard it is for foreign companies to be successful in China," Mark Canizares, an analyst with Citisec-Online in Manila, said by telephone. "The Internet in China and the US is culturally very different so a local Chinese company like Tom Online has a better chance at being successful."

EBay chief executive Meg Whitman said in October that eBay "wants to remain a player in China," a market the company last year called the "largest e-commerce opportunity today."

The company will keep a site that allows Chinese sellers to do business with buyers outside the country, the person said.

Earlier this month, the company said it hired Daniel Lee to head a development center in Shanghai to narrow the gap with leader Alibaba.com Corp (阿里巴巴) which operates Yahoo Inc's China Web site.

Lee, most recently chief technology officer for Yahoo's North Asia unit, will lead the center's expansion as well as research and development of products.

EBay more than doubled its share of the Chinese Internet auction market in the third quarter to 40 percent from 17 percent three months earlier, research company Analysys International said.

The US company outpaced growth for Alibaba's Taobao.com unit, which raised its share to 44 percent from 32 percent, Beijing-based Analysys said.

Tencent Holdings Ltd raised its share to 14 percent from 7.5 percent, the researcher said.

The venture with Tom Online will be able to introduce new products and services faster because the auction site won't have to coordinate with eBay's US-based management, Liu Bin, an Internet analyst with Beijing-based research company BDA China Ltd, said.

Tom Online's management also has a better understanding of the Chinese auction market, where many of the sellers are small businesses rather than individual users, he said.

"Tom Online's local management team should help raise eBay's market share, but it won't be by much if eBay continues to charge users while rival sites remain free," Liu said.

China was home to 123 million Internet users at the end of June, second only to the US, according to government data.

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