United States-based Internet giant Yahoo!, with a demonstrated track record in international expansion, is the biggest threat to China's leading portal operators, according to US securities house Merrill Lynch. Analysts at the brokerage's Asia-Pacific unit said China portals needed to grow quickly via mergers and acquisitions as they were expected to have a buffer period of only one to two years before foreign operators posed a formidable challenge to them. They hailed Sohu.com's takeover of ChinaRen.com last month as 'a step in the right direction'. 'Although Yahoo!'s present position in China is much weaker compared to the top three portals [Netease, Sina.com and Sohu.com] . . . once it commits to China, over time it is likely to become a major, if not No 1 player in the market,' they said in a new research report. Other US technology companies such as America Online, Lycos and Microsoft are expected to make inroads into the China Internet market after Beijing joins the World Trade Organisation. As a condition of entry to the WTO, China has pledged to allow 30 per cent foreign stakes in Internet service providers on accession, rising to 49 per cent after one year and 50 per cent after two. But entrance of foreign operators does not mean they 'will leave nothing on the plate' for local operators, said David Cui, Merrill Lynch vice-president of equity research. Judging from the US market's experience - where the top three contenders control only about 36 per cent of the entire market - he believes the top China operators have ample room for expansion in a fast-growing market. They were also prime candidates for Sino-foreign partnerships. Although Yahoo!'s Internet content provider joint venture with China computer giant Founder Holdings has been delayed for more than a year due to regulatory restrictions, they have set up a joint-venture Internet advertising agency, Founder Ad-Targeting. Founder's Hong Kong-listed flagship Founder (Hong Kong) has also joined forces with Yahoo! in the takeover of Management Investment & Technology (Holdings) - their China Internet flagship.