Tencent Takes 15% Stake In JD To Strengthen Position Against Alibaba

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Tencent, one of China’s largest Internet services companies and the maker of WeChat, and JD.com have formed a strategic partnership. The deal can potentially boost Tencent’s competitive position against rival Alibaba Group, which dominates China’s fast-growing e-commerce market.

Though it’s much smaller than Alibaba Group, JD.com is China’s second-largest e-commerce company, and made a total of $16.5 billion in sales last year. As part of the agreement, Tencent has agreed to take a 15% stake in JD, formerly called 360Buy.com, and also subscribe at its IPO price for an additional 5% when JD goes public. JD’s SEC filing says it plans to raise up to $1.5 billion with its IPO.

Its partnership with JD.com is the latest in several steps that Tencent has taken to boost its e-commerce and mobile strategies as rival Alibaba prepares for a highly anticipated IPO. In the last two months, Tencent has launched a new mobile open platform initiative to attract developers and invested $195 million in logistics firm China South City, and released a major new upgrade to WeChat.

As part of the deal, JD will acquire Tencent’s QQ Wanggou B2C and PaiPai C2C marketplace businesses and a minority stake in Yixun. It also has the right to acquire the remaining stake of Yixun in the future. In return, Tencent will support JD’s e-commerce growth by offering access to users on Weixin, Mobile QQ, and other platforms it owns. Both companies will also work on an online payment service.

Its new access to Tencent’s resources and users is a huge boon for JD.com. Though JD.com has grown very quickly over the past year, it still trails behind Alibaba, with a 17.5% market share compared to the 51.1% held by its larger rival, says iResearch.

Tencent president Martin Lau will join JD’s board of directors. The two companies said in an announcement that Tencent will be able to leverage JD’s e-commerce services to enhance its user experience, while JD in turn will be get access to Tencent’s mobile and Internet user base.

In a statement, Lau said “Through this strategic partnership with Tencent in key areas, such as mobile access points, traffic support, and e-commerce activities, we hope to enhance our ability to provide high quality and enjoyable shopping experience to a broader and growing user base while strengthening our direct sales and marketplace businesses on mobile and Internet.”

“Through this strategic partnership with Tencent in key areas, such as mobile access points, traffic support and e-commerce activities, we hope to enhance our ability to provide high quality, and enjoyable shopping experience to a broader and growing user base while strengthening our direct sales and marketplace businesses on mobile and Internet,” said JD.com founder, chairman, and CEO Richard Liu.

Picture of Martin Lau (left) and Richard Liu (right) provided by JD.com