Japan's Rakuten to end Chinese e-commerce services under JV with Baidu

Rakuten to close e-commerce site in China because of heavy competition and failure to meet expectations

Japanese Internet giant Rakuten announced on Friday it would end a major e-commerce business in China with local search company Baidu, citing its failure to meet expectations in the midst of intense market competition.

Rakuten plans on closing its "Lekutian" online shopping business for China by the end of May, the company said. Services for the Lekutian shopping mall site, at Rakuten.cn, will stop on April 27.

The Lekutian site had been set up as part of joint venture with Rakuten and Baidu to tap into China's burgeoning e-commerce market. But on Friday, Rakuten said the site "did not perform in line with our expectations," and noted that competition in Chinese e-commerce market had "intensified."

Baidu, however, appeared to be caught by surprise by the news. "So far we have just been informed from the Rakuten side," said Baidu spokeswoman Betty Tian on Friday late afternoon local time. "Both parties are hammering out the details on what to do following the decision."

Both Rakuten and Baidu made the decision together, according to Rakuten's statement. But Baidu denied that claim.

Rakuten owns 51 percent of the joint venture, while Baidu owns the remainder.

The ending of the e-commerce services represents a blow to both companies aspirations to break into China's online shopping market. Rakuten is a major e-commerce operator in Japan, while Baidu is the dominant search engine in China.

China's online shopping space, however, is dominated largely by local industry players, including Alibaba Group, the country's largest e-commerce company. Last year, total transaction value in the country's online business-to-consumer more than doubled from the year before, reaching 240 billion yuan (US$38 billion), according to Beijing-based research firm Analysys International.

Expectations for the Rakuten and Baidu joint venture had been high, after the cooperation was announced in January 2010. Both companies invested US$50 million to build the site. A year ago, Baidu also transferred e-commerce services from its own Youa platform to Rakuten's China site.

A Rakuten China spokesman said on Friday the company set up by the joint venture will remain in operation. Rakuten will also continue exploring the Chinese e-commerce market to plan for other business opportunities, he added.

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