eBay May Quit from China

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(SinoCast China IT Week Via Thomson Dialog NewsEdge) SHENZHEN, September 28, 2006, SinoCast -- Online auction giant eBay is probably to quit from China due to strong competition from Chinese rivals, Taobao.com.

Tom Group, the media group controlled by Hong Kong billionaire Li Ka-shing, may take over eBay Eachnet and its online payment service, PayPal's China division.

Analysts said it was unlikely that eBay would withdraw from the China market, but it was possible that eBay would retain some stake in its China division while seeking a Chinese partner.

Neither of the two companies denied the report.

"We have no comment on this report now," said Liu Wei, director of public relations with Shanghai-registered eBay Eachnet.

The 21st Century Business Herald reported that Hong Kong- listed Tom Group would announce its takeover of eBay's China division and its PayPal service within a few days, citing a well-informed source. An agreement between the two companies had already been signed, it said.



Lee Shuk Wen, an official from Tom Group, said they were "open to the business opportunities on mainland but have no details to disclose at present." eBay bought one-third of Eachnet's stake for USD30 million in 2002. It spent another USD150 million on the remaining shares of Eachnet in 2003.

But shortly after that, eBay Eachnet's share in the consumer-to-consumer market went down under competition from taobao.com.

Taobao.com attracted customers from eBay Eachnet with its free online trading platform, while Eachnet collected a commission of up to CNY 8 for each item sold on its site.

By last year, Taobao accounted for 67.3 percent of the C2C market in Shanghai, Beijing and Guangzhou, much higher than eBay's 29.1 percent, according to the China Internet Network Information Center (CINIC), the country's official Internet statistical agency.

"It is possible that eBay will reduce its investment in China because of its poor performance in the past three years over pressure from its shareholders," said Yu Yang, president of Analysys International, a Beijing-based research company.

"But China is such a big market that no big multinationals can afford to lose, so it's unlikely that it will completely withdraw from China." In March 2003, eBay bought one third of Eachnet's stake by paying USD30 million, while Eachnet accounted for over 90 percent of China's C2C market. It spent another USD150 million to buy the remaining shares of Eachnet in 2003.

However, in April, Jack Ma, CEO of Alibaba.com'China's largest B2B Website, established Taobao.com and later lured away many of eBay China's customers by offering a free online trading platform, while Eachnet collected a commission of up to CNY 8 for each item sold on its Website.

By 2005, Taobao accounted for 67.3 percent of the C2C market in Shanghai, Beijing and Guangzhou, much higher than eBay's 29.1 percent, according to the China Internet Network Information Center.

In another development, the People's Bank of China is drafting a regulation which stipulates that foreign investment faces a limit for its shares in an enterprise operating online payment systems. eBay is the only owner of its C2C Website in China and the Paypal service. It was looking for Chinese partners in its startup, but ended up selling off its Chinese branch.

By the end of June, Tom Group had HKD 1.7 billion in cash and a credit line of HKD 2.1 billion. The well-informed source also said eBay China appointed Liao Guangyu as its new CEO only to carry out the takeover. Liao replaced Martin Wu, who became eBay's CEO last September.

Copyright 2006 Sinocast
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