JD appeared at Alibaba’s annual conference on Friday. Alibaba’s founder Jack Ma told attendees that the two companies “have same dream, same mission and same goal to help entrepreneurs” and that eBay “is a company we should learn from”. Ma has famously criticised US companies for thinking they can buy their way into the Chinese market, saying of eBay under Meg Whitman, “We did not beat them in the US… yet”.

The two companies have long been rivals, but an alliance could now make sense. Insiders say that merchants, particularly in the US, are unhappy with using Alibaba’s own payment system Alipay, and are demanding the facility to use PayPal. For PayPal, Alibaba could offer the potential for huge expansion in the Chinese market.

Alibaba’s PR department has said that the company will decide whether to adopt other payment tools based on user demands. Merchants outside China are likely to favour PayPal over many alternatives: Alipay is unfamiliar, and bank transfers to China are expensive and the costs are borne by buyers. PayPal, on the other hand, offers the cashflow-speeding possibility of spending your earnings directly on new stock, something that newer and smaller traders value intensely.

China has been a failed territory for eBay from day one, and PayPal hasn’t fared any better. The new Eachnet site is a joint venture between eBay and the Tom Group, a local online media company.

Of eBay’s three main businesses currently only Skype has been successful in penetrating the Chinese market. Hopefully the new venture will end the run of failed foray’s into the far east.

In order to strengthen buyer confidence, all transactions will use an escrow service, a third party which holds the buyer’s payment until the seller has delivered satisfactory goods. This is presumably the source of the story about Paypal pulling out of China: there are not yet any details of who the escrow provider would be, but a local company would seem the best bet. In addition, sellers will be more carefully vetted, and restrictions on the sale of luxury goods will be in place. “Whatever we do elsewhere to assure trust and safety, in China we have to do more,” said Whitman.

This is the second phase of eBay’s hokey cokey dance with China. The first venture, Eachnet, folded at the end of last year. On the flip side, Skype’s growth in China is their fastest of any country, and they now have more Chinese than American users.

Despite offering a free service for local currency payments, there were persistant rumours last year that Chinese regulators would force Paypal to partner with a local company, just as eBay themselves did with the TOM Group.

Meg Whitman said that eBay remained “very committed” to Paypal in China, but with such a tiny market share, she surely must be asking herself if it’s now worth persisting.

eBay have had mixed results with moves into new territories, 2006 saw eBay shut down it’s Chinese eBay Eachnet website to be replaced by one run by local partner Tom Group. It looks like lessons have been learnt and partnering with a local established Internet presence in Thailand should ensure a faster takeup of the site.

Demanding instant success in China is pointless: “A lot of people assume that because of money, technology and branding, it will be a success. But the market can’t be bought. You have to build little by little to get into the market – it’s about people, and you need patience.”

123 million Chinese people are online, the largest number in any country outside America, but just 10% of the population: it’s obvious why western firms would want to cash in on such an enormous potential market. Ma’s words ought to be a timely reminder that global trade can run in both directions.

“We will see what the right thing to do is here in the People’s Republic of China, I am aware of some of the pending government regulation around the need to find a local partner for a financial-services product,” Whitman said.

“But we continue to invest in PayPal and the cross-border trade is very strong and the local trade is very strong, so we will see what happens over the next weeks and months, but we are very committed to PayPal in China.”

Respected user:

Since June, 2003 the eBay note capital easy interest, the eBay easy interest always has been the China leading electronic commerce website, provides for the domestic buyer and a seller domestic trade and the foreign trade platform. In the past several years, your service development regarding us were count for much. Along with the Chinese market in the electronic commerce potential unceasing growth, eBay unceasingly is seeking the new opportunity to impel the on-line transaction to tread a new stair.

Today, we very happily to everybody announced eBay and Tom on-line already reached the agreement, establishes a joint venture, marches into the new growth stage for the Chinese fast growth electronic commerce and the motion commerce to lay the foundation.

Through the conformity both sides superiority, eBay Yi Qu and TOM on-line will collaborate in 2007 to make specially the brand-new transaction platform which will have custom-made for the Chinese market. The new transaction platform will take to the domestic buyer and seller are more on-line and the motion opportunity. In after the new transaction platform the line, you are invited to shift to the new platform. Before this, you certainly cannot come under the influence in the eBay Yi Qu transaction.

The new platform will manage by the local team, provides the better user experience, will let individual user and the small business users can gather in this platform carries on the transaction.

EBay will continue in China to carry on the service to expand, between promotion domestic seller and global buyer transaction. From now on we also will be able to have part of staffs to continue in China to support the transnational trade development.

We understood this future the transaction will have the certain influence to you, we will be making a brand-new on-line transaction platform, the future several months we can inform everybody newest progress as necessary. Will thank everybody the transaction and the hope continues from now on in ours platform in ours platform the transaction.

(Translation by Babelfish, but you get the idea!)

Interesting to see the emphasis being put in “you’ll still be able to trade internationally, in fact it’ll get even easier”. Sellers in the rest of the world, whose fees have paid for eBay’s Chinese antics and now appear to have paid Tom Group for their involvement in the new venture, might not feel so reassured.

EBay now abandons China and us, the loyal workers.
I am one of the many disgruntled Eachnet employee. I have suffered through the incompetence of Ebay leaders for many years. I admit I am greedy. I stay for money. But Ebay has screwed up our Company and in China.

Meg Whitman is Ebay Mao Zedong. No one dare tell her the truth. … This deal will just put her down in history as China’s worst businesswoman ever.

Copies of press releases alleged to be for release this week follow, giving details of a 49:51 deal with Tom Group to develop the Chinese auction site, and of Paypal’s 33% stake in a new payments venture with UMPay, a leader in mobile payments in China.

Even The Wall Street Journal is now reporting this story; here’s a more accessible and upbeat version from AP; it’s going to be an interesting week, one way or another.