Mainland internet firm Tencent said it will spend HK$1.5 billion to expand its integrated logistics and e-commerce capabilities through the purchase of a 9.9 per cent stake in Hong Kong-listed warehousing and trade centre operator China South City Holdings.
The two firms said they would pursue "extensive collaboration in integrated online and offline trade services", including e-commerce, outlet services for branded goods, online payment and warehousing and logistics arrangements.
"The lining-up with South City shows that Tencent is very active in increasing its market share in e-commerce," said Ricky Lai, a research analyst at Guotai Junan International.
Tencent, the dominant player in the mainland's social networking market with products including QQ and WeChat, gained a foothold in e-commerce at the end of 2012. By the third quarter of last year it had secured a market share of 6 per cent in the business-to-customer (B2C) sector, trailing only e-commerce giant Alibaba Group's Tmall and Beijing-based Jingdong.
"As a newcomer Tencent has done pretty well in a short period of time," Lai said.
Hangzhou-based Alibaba's Tmall B2C platform boasts a market share of 51.1 per cent while Jingdong, also known as JD.com  has 17.5 per cent.
Lai said Tencent would not be able to challenge Alibaba's leading position in the e-commerce market in the short term, but it had the potential to enlarge its market share through its popular mobile social networking platform WeChat.
He said its South City purchase might add heat to the already intense competition between Alibaba and Tencent.
Alibaba entered into a similar deal last month with Haier Electronics, buying a 10 per stake in the appliance manufacturer's logistics arm for HK$1.86 billion.
Alibaba founder Jack Ma Yun also chairs an ambitious project called Cainiao, which plans to invest as much as 100 billion yuan (HK$127 billion) over the next five to eight years in mainland logistics networks with the aim of providing 24-hour delivery nationwide.
Shenzhen-based Tencent will pay HK$2.20 for each of the 680.3 million new shares of China South City, representing a premium of 1.4 per cent to South City's closing price on Monday. South City also agreed to grant Tencent the option to raise its stake to 13 per cent over the next two years.