'Better served'

Under the joint venture terms, eBay and Tom Online will split revenue and any profits according to their stakes.

Both parties can also contribute equally to an additional $10m investment in the venture if there is mutual agreement, eBay said in a statement.

The venture, headed by Tom Online chief executive Wang Lei Lei, will be built up into an entirely new auction website that will be launched in 2007.

The move comes as other Western media firms have cut their presence in China, facing stiff local competition.

"One thing we've learned operating here for three or four years is that actually we are going to be better served by tapping into a local partner who has local knowledge," eBay chief executive Meg Whitman told Reuters news agency.

Regional rivals

Three years ago, eBay was the main player in China's online auctions market with a 79% share.

But in 2003, Taobao was launched. By 2005, eBay's share had fallen to 36%, compared with Taobao's 59% share, according to research firm iResearch.

However, eBay has said that Tom Online's internet presence and 75 million mobile phone users would position it for growth in the market.

Its main rival will be Alibaba, which acquired Yahoo China - which took 40% of Alibaba's shares - in 2005.

EBay withdrew from Japan in 2002 after losing out to rival Yahoo.