Yahoo, the internet search engine, has agreed to pay $1 billion in cash to take a 40 per cent stake in Alibaba.com, the biggest e-commerce internet site in China, in the latest sign of the explosive growth in the region.
The U.S. company will now hold a 40% stake - and 35% of the votes - in the Chinese firm, which runs the country's biggest auction and trading sites.
The investment positions Yahoo to compete with world auction leader eBay in a key market, BBC reports.
Chinese internet firms are in demand after the rip-roaring flotation of search engine Baidu.com a week ago.
The firm's shares have more than tripled in value since the start of trading, to more than $90 a share.
According to the latest Government estimates some 100 million people use the internet in China which, with a population topping 5 billion, has huge potential for growth.
Alibaba was only established in May 2003, but its auction site taobao.com, run in partnership with Softbank, claims to have 6 million users and has a high profile across the region, Times Online reminds.
Taobao competes fiercely with Eachnet, the auction site that was bought by Ebay two years ago for $180 million.
The Alibaba websites collectively claim more than 15 million registered users.
Terry Semel, chairman and chief executive of Yahoo, said: "Yahoo's investment underscores our long-term commitment to the Chinese market. We believe the combination of Yahoo and Alibaba is the best approach for Yahoo to win in this region.”
"Together, we will create one of the largest internet companies in China, and our combined assets will makes us the only company that has a leading position in all the key sectors that are driving explosive internet growth in China such as search, commerce and communications."
The deal marked a new high in foreign interest in Chinese Internet firms.
EBay entered China though a $180 million purchase of Shanghai-based EachNet. InterActiveCorp paid $168 million for 52 percent of Chinese online travel agent eLong, Reuters informs.
Online retailer Amazon.com purchased local player Joyo.com for $75 million, and online job search leader Monster.com bought a 40 percent stake in ChinaHR.com for $50 million.