The Chinese unit of US online auction service eBay will on Friday scrap all sellers’ transaction fees, bowing to market pressure from local competitors – led by Yahoo-invested – that offer free services.

The move by unit eBay Eachnet, which will continue to charge users small fees to list goods for sale on its website, highlights the fierce competition the US company faces in a Chinese market it sees as a vital source of future growth.

It also contrasts sharply with eBay’s efforts to raise fees in other markets. On Wednesday, eBay said it would raise the fees in the US by 9 per cent for goods worth between $25 and $975.

EBay China had repeatedly waved aside challenges by Alibaba to scrap its charges, saying in October: “‘Free’ is not a business model”.

However, its Chinese auction website sharply reduced its charges last year and recently began waiving transaction fees for the use of local escrow or PayPal services, which are also free.

From on Friday, eBay Eachnet will scrap transaction charges while requiring sellers to settle deals using those payments services.

“Each market is different…Chinese people are very price-sensitive, perhaps more than any other market,” said Lillian Liu, for eBay China. . “It is very important for us to lower the cost for sellers and to encourage them to offer safe payment.”

In China, eBay’s transaction fees were previously charged as a percentage of the value of completed sales, ranging from Rmb10 for a sale worth Rmb500 ($62) to Rmb115 for one worth Rmb20,000.

Its listing charges are much lower – a maximum Rmb3 for items with an initial price of Rmb2,000 or more. The move will add to eBay’s difficulty in maintaining sales growth outside the US.

Year-on-year international revenue growth declined to 35 per cent last quarter from 65 per cent in the final three months of 2004.

Alibaba, which has promised to keep its auction website free for three more years, said eBay’s decision to scrap transaction fees would not help it regain its lead in China.

“Our listings and transactions are growing so fast it looks like they have finally seen the writing on the wall, but it is way too late in the game,” said Porter Erisman, Alibaba vice-president for corporate marketing. “The game is over as far as we are concerned.”

Alibaba, in which Yahoo has a 40 per cent stake, said its users accounted for about 70 per cent of China’s online consumer-to-consumer market in 2005, with transactions worth Rmb3bn in the fourth quarter and registered users up 3.85m to 13.9m.

But analysts say eBay has struggled to respond to the challenge from Alibaba and from new auction market entrants including Nasdaq-listed instant messaging company Tencent and online retailer

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