Tencent bought a 9.9% stake in China South City for $1.5bn Hong Kong dollars in a bid to further beef up its e-commerce business.

 

It will have the option to increase its stake to 13% over the next two years.

 

Tencent shares rose more than 5% in Hong Kong on Thursday on the news.

 

China South City stock also rose to a record, surging 83% in Hong Kong.

 

"Chinese small-to-medium-sized enterprises have huge demand to expand their businesses online," Tencent President Martin Lau Chi Ping said in a statement.

 

"Cooperation with China South City enables us to jointly² facilitate such enterprises migrating online, utilising China South City's physical locations and logistics capabilities³." 

 

Both companies are headquartered in the southern Chinese business hub of Shenzhen.

 

They will collaborate⁴ on online payment services, and warehousing and delivery services.

 

China South City said in a statement the deal will also allow both firms to "benefit from the economies of scale."

 

 

The purchase will also up Tencent's rivalry⁵ with e-commerce giant Alibaba over control of China's lucrative⁶ internet commerce sector⁷. 

 

China is the world's biggest internet market, with an estimated 608 million users.

 

Online retail⁸ in China is forecast to more than triple to $395 billion by 2015, according to a report by McKinsey & Co.

 

Both companies have been looking to expand their offerings as more internet and smartphone users spend money online.

 

As a result, Tencent and Alibaba have increasingly moved into each others traditional territories.

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