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EBay, the world's largest online auction site, is ready to pack up and leave China, if rumours on the internet are to be believed. Not so, says eBay China's  spokeswoman Lilian Liu, who insists the company has a long-term commitment to the mainland.

'The China market is a long-term, strategic priority for eBay and we will be fine-tuning our strategies to adapt ourselves to the evolving market and competition,' said Ms Liu.

'EBay is committed to the China market. Our objective is to build the best selling and buying experience for our community in China. The objective has not been changed and won't be changed in the future,'  she added.

EBay, led by president and chief executive Meg Whitman, would have good reason for turning its back on the world's second-largest internet market by number of users, where heavy investment has failed to prevent it losing both money and market share.

'EBay has spent  between US$300 million and US$400 million in China,' said an industry source.

At the same time, its market share has dropped to about 28 per cent in the first quarter of this year from more than 80 per cent when eBay bought EachNet, then the largest mainland online auction site, in  2003, according to Analysys, a  market research firm.

EBay spent US$180 million acquiring EachNet and a further US$100 million  last year to build up the operation. The prospects of turning profitable are remote, with eBay's competitors content to offer their services for free.

The market leader, privately owned Alibaba, subsidises  its online auction division, Taobao, with profit from the parent's business-to-business site. Latecomer Tencent is happy to keep its online auction site, Paipai, running just for cross-sales with other services on its hugely popular instant messaging platform, QQ.

In comparison, United States-based eBay is under pressure from investors to perform. Its stock price has dropped substantially in the past two years, to a recent low of US$23 in August from a high of US$60 in January  last year.

Earnings growth has slowed to 22 per cent year on year in the second quarter this year from 107 per cent in the second quarter of 2004.

Meanwhile, eBay's focus in the international market has moved to its online payment service,  PayPal, and to Skype, its voice over internet protocol communication services.

Trouble at home would further curtail the US company's overseas ambitions, said the industry source.

'EBay's model only works in the US and Germany, where the internet populations are mature,' said Mr Erisman, a vice-president of international marketing and business development at Alibaba. 'In Asia, they have not been successful.'

EBay retreated from Japan in 2002 when it failed to oust Yahoo Japan as the dominant vehicle in online auctions.

More recently, eBay turned its Taiwan operation over to local publisher PChome, when it was struggling with 5 per cent market share. The site was relaunched as ruten.com.tw  last month, with eBay holding a minority 35 per cent stake. The two parties have jointly invested about US$7 million in the new site,  according IDG news service in Taiwan.

Talk of a pullback from China comes as the government is expected to carry out a pledge made  last year that it will issue rules this year under which all internet payment service providers, including eBay's 100 per cent-owned PayPal, would have to have a mainland partner to offer such services in the country.

'The regulation change could be one of the reasons why eBay is thinking of leaving China,' Huang Yongtao, an analyst  at Analysys, said.

Online payment and communications are now eBay's main growth drivers. Payment net revenues surged 39 per cent in the second quarter this year to US$339 million. In comparison, the company's net transaction revenues in the US grew 20 per cent in the period to US$490.4 million, while they grew 23 per cent at its international unit to US$506.6 million.

The appointment last month of Jeff Liao, PayPal's China chief, to be the chief executive of both eBay and PayPal, further fuelled speculation.

'[Mr Liao] is a bean counter. If you want to develop a market, you need a marketing guy', said one source.

Mr Liao, with 23 years experience in banking and finance and a former general manager of Standard Chartered Bank in China, is seen as more adaptable to matters such as valuation and perhaps negotiating with interested parties for the sale of the company. He replaces Martin Wu, who joined eBay China as chief executive last year from his post as chief marketing officer of Microsoft's Greater China region.

'There have been rumours for months that eBay is shopping around for potential buyers or partners for its China operation,' said an industry source. Both Tencent and Tom Group - Hutchison Whampoa's media flagship, which owns the country's top wireless value-added service provider, Tom Online - are reported to have talked with eBay about a potential acquisition or partnership.

Even so, 'unless there is very eager buyer, it won't happen until next year', said one source. 'EBay will not jump at the first bidder. They would like to shop around for the best offer. Also, it will take some time to repackage eBay China.'

Alibaba's Mr Erisman thought that no matter who  takes over eBay China, it will not change Taobao's dominance in the market.

Tom and Tencent 'understand the local market, but they don't understand e-commerce', said Mr Erisman.

An eventual departure of eBay from China would open up  opportunities for co-operation between it and Alibaba on the international front.

'Many eBay sellers are buyers at the Alibaba  B2B site,' said Mr Erisman. 'Two years ago, when eBay held its eBay Live community conference, more than a thousand of the attendants turned up at Alibaba's function nearby.'



EBay vows long-term play in China