EBay to Use Joint Venture to Run Chinese Operation

EBay Inc. (EBAY) will roll its China site into a joint venture run by a Chinese partner, a source said, in the latest example of a Western media firm ceding control of its China operation in the face of a tough market.

Under the plan, eBay, the world's biggest online auctioneer, will put its China eBay business, which it purchased for $180 million, into a venture with Beijing-based Tom Online, a person familiar with the matter said.

Tom Online (TOMO), an Internet and wireless media specialist, would hold a controlling 51 percent of the venture, with eBay holding the remaining 49 percent, the person said.

Shares in Tom Group and its Tom Online subsidiary, both of which are controlled by Hong Kong tycoon Li Ka-shing, were suspended from trade in Hong Kong on Tuesday. Tom Online had risen nearly 14 percent and Tom Group 5.56 percent.

EBay's decision was a strategic one aimed at strengthening its position in the region and not an exit, as some have described it, the person familiar with the matter told Reuters.

There were no plans for job reductions in China, the person said, adding an announcement could come as early as Tuesday.

A spokesman for eBay said the company would not comment on speculation, and a Tom Online spokesman also had no comment.

Analysts say eBay is reluctant to retreat from China as it did from Japan in 2002. EBay shut its nascent business there after failing to make headway against market leader Yahoo Japan Corp.

Paypal Deal

In a separate deal, eBay's PayPal online payment unit, which set up shop in China last year, will announce its own deal to form a joint venture with a locally based electronic payment specialist, according to local media reports.

Under that deal, PayPal will give $105 million for a 33 percent stake in the venture with UMPay, which is itself a joint venture between China Mobile, China's top mobile carrier, and China UnionPay, operator of an electronic financial system linking most major Chinese banks.

A PayPal spokesman in China had no comment on the reports.

The eBay China deal would closely parallel one by rival Yahoo Inc. (YHOO), which last year also ceded control of its China search operation to Alibaba Inc., a locally controlled online marketplace and auction site operator.

Under that deal, Yahoo paid $1 billion and rolled its China search site — which it purchased in 2003 for $120 million — into Alibaba's broader operations in exchange for a 40 percent stake in Alibaba.

In another similar deal, media giant Time Warner (TWX) in 2003 sold a controlling stake in its struggling China TV station, CETV, to Tom Group.

China is one of the world's fastest growing media markets, with about $500 million in online ad spending and as much as $75 billion in e-commerce last year, according to various estimates. But it is also one of the toughest, due to its high fragmentation and heavy government oversight.

In a sign that local ownership is not always a quick fix, both CETV and the former Yahoo China search site have continued to fight uphill battles since the ownership changes.

The former Yahoo China search site has reportedly struggled following the Alibaba takeover, with Yahoo China's recently named president resigning in November less than two months after taking on the job.

Likewise, CETV — limited to mass broadcasting rights in affluent Guangdong province — has yet to make a major dent in the local ratings three years after the ownership change.