Yahoo China is negotiating to acquire a stake in the largest Chinese e-commerce company.
Yahoo, one of the biggest Internet companies in the world, is negotiating to acquire a stake in Alibaba.com, the largest Chinese e-commerce company, people familiar with the talks said Monday.
The two Internet companies have held discussions for months, and it is still unclear whether they will reach an agreement soon, these people say. But an alliance between Yahoo and Alibaba would greatly intensify competition in China's growing Internet auction market.
The deal could result in one of the largest foreign investments ever made in a Chinese technology company, and it seems certain to create an even stronger competitor in China for eBay, the online auction giant.
People who have been briefed on the discussions say that Alibaba.com has been eager to raise more cash and find a partner before offering shares to the public and that Yahoo has been seeking to make a larger push into China.
One of the largest investors in Alibaba.com is Softbank of Japan, which also holds a sizable stake in Yahoo. Officials at Yahoo and Alibaba.com declined to comment on reports about the negotiations.
Forbes magazine, which was the first to report on the discussions, said on its Web site on Sunday that Yahoo might spend as much as $1 billion to acquire a 35 percent stake in Alibaba.com.
Some of the largest technology companies are racing to extend their reach in China in hope of profiting from its explosively growing online market.
"Everyone's trying to tap into the high-growth Internet space in China," said Dick Wei, the China Internet analyst at J.P. Morgan. "Right now only about 8 percent of the population is using the Internet. But it's growing very fast."
As a result, Microsoft, Yahoo, Google, eBay and Amazon.com are all scrambling to invest more money or to find strategic partners in China, where there are now an estimated 100 million regular users of the Internet. By some forecasts, China will overtake the United States to have the largest number of Web surfers as early as 2010.
In the past few years, Amazon.com has acquired Joyo.com, the largest online bookseller in China, for $75 million; eBay has bought the Chinese auction site Eachnet for $180 million; and Yahoo has purchased a Chinese search engine called 3721.
Yahoo's discussions with Alibaba.com are also a barometer of the dot-com excitement and the flood of speculative capital that now surround Chinese Internet and technology companies.