Yahoo / Alibaba.com

Yahoo Inc. is paying $1 billion in cash for a 40 percent stake in China's biggest online commerce firm, Alibaba.com, strengthening the ties that international companies are forging in the world's second-largest Internet market.

Yahoo said it will merge its China subsidiaries into Alibaba as part of Thursday's deal, the biggest in a flurry of investments by foreign Internet firms eager for access to China's soaring number of Web users, now pegged at 100 million.

Alibaba runs a Web site that matches foreign buyers with Chinese wholesale suppliers, plus the popular consumer auction site Taobao.com, which competes with the Chinese subsidiary run by eBay Inc., the world's top online auction company.

The new Yahoo-Alibaba combination will include 3721.com, a Chinese-language search engine that Yahoo acquired last year for $120 million.

That will put it in competition with China's most popular search engine, Baidu.com, whose initial stock offering in the United States last week set off a buying frenzy. Its share price soared more than 350 percent in its first day of trading before declining this week.

Consumer-to-consumer online auctions in China totaled about $500 million last year, while business-to-consumer sales were about $1 billion, according to Joe Tsai, Alibaba's chief financial officer. He said only about 4 million people in China have used online commerce.

But Tsai said online sales are expected to grow 80 percent annually over the next three years.

With its 40 percent stake valued at $1 billion, Yahoo clearly expects huge growth from Alibaba, whose revenue was $68 million last year. Advertisers and companies pay $5,000 to $10,000 per year for membership in its commercial online auction service. It does not charge fees for individual auction listings as eBay does.

Yahoo said its investment will make it the biggest shareholder in Alibaba, which has 2,300 employees and is based in the eastern Chinese city of Hangzhou, southwest of Shanghai.

(c) AP