EBay Shifts China Strategy

EBay Inc. headquarters in San Jose, Calif., is shown in this April 21, 2004 file photo. EBay Inc. and a Beijing-based Web portal announced Wednesday, Dec. 20, 2006 they are launching a joint-venture Chinese auction site, marking a strategic shift for the U.S. company, which has struggled to penetrate China's market. (AP Photo/Paul Sakuma, File) (Paul Sakuma - AP)

BEIJING -- EBay Inc. announced Wednesday it is turning over control of its Chinese auction Web site to a Beijing-based partner in a new joint venture, marking a strategic shift as the U.S. company tries to penetrate China's market.

The deal with Tom Online Inc. comes as foreign companies struggle to adapt to China, the world's No. 2 Internet market. Yahoo Inc. launched a strategy similar to eBay's last year, turning over management of its China operation to a local partner, commerce site Alibaba.com.

EBay said it would fold its China subsidiary, eBay Eachnet, into the venture with Tom Online, a popular Chinese provider of games and other value-added online services. EBay will contribute $40 million and own 49 percent of the venture, while Tom Online contributes $20 million, owns 51 percent and has management control.

EBay CEO Meg Whitman said the company is committed to China and she rejected suggestions the Tom Online deal represented a failure of its earlier approach, which included the 2003 acquisition of Eachnet, a Shanghai-based auction site.

"We don't see it as a failure. We see it as an evolution of our strategy here in China. We are very pleased with the performance of eBay Eachnet," Whitman said in a conference call with reporters.

"I think you have to be willing to evolve your strategy on a local market basis to make sure you are doing the right thing for your buyers and sellers and the right thing for your company," she said.

Elsewhere in Asia, eBay took a similar approach in Taiwan, where it merged its auction site in June into a joint venture with local partner PC Home.

"We have determined that every country in Asia is quite unique, and we have to make a decision about every country in Asia, how we want to do business," Whitman said.

The new Chinese venture faces competition from Alibaba's Taobao.com, the country's leading auction site.

Tom Online CEO Wang Lei Lei, who joined Whitman on the conference call, said they plan to build on the company's strong traffic and 75 million registered users for e-mail, search and other services.

"I think in the future with the partnership, we can have good consolidation of the traffic flow," Wang said in the conference call.

China has the world's second-biggest population of Internet users after the United States, with 123 million people online. But in financial terms, the country lags behind the United States, Japan, South Korea and other markets.

Online commerce has been slow to develop due to poor distribution systems for goods and the late development of online payment in a society where few people use credit cards.

China also has more than 400 million mobile phone users, which has fueled interest about possible wireless e-commerce.

"We believe that wireless e-commerce will be quite promising. It's something that we need to follow up," Wang said.

In September, eBay tightened restrictions and registration requirements to reduce fraud among Chinese sellers. But it has been unable to significantly reduce fraudulent listings in China, home of pirated software, movies and books.

The first public signs of eBay's struggles in China came in January 2005, when it warned that its annual financial performance would fall short of bullish expectations.