Red Herring reports today about a new alliance between eBay and Yahoo!, in a bid to “resist rivals like Google and Microsoft”:

“The companies plan to expand an existing advertising and search relationship so that Yahoo becomes the exclusive third-party provider of all graphic ads throughout eBay. Yahoo will also have an exclusive deal on some of the sponsored search results on eBay, though the extent of those was unclear. Yahoo is also going to provide more current links to items for sale on eBay for users who do their searches from Yahoo’s site. As web-based advertising continues to prove its ability to bring in revenue, even web sites like eBay that have been strong e-commerce players are looking for ways to increase their profits from online ads and search.”

From a global perspective, the possible benefits of such an alliance are clear. In China, on the other hand, it gives birth to a perplexing situation: eBay’s largest competitor in soon-to-be the world’s largest online market is TaoBao.com. TaoBao.com is owned by Alibaba.com. As it happens, Yahoo! owns 40% of Alibaba, and Alibaba is responsible for all of Yahoo!’s activities in China.

This means that Yahoo! China is both eBay's biggest competitor and its strategic partner.

The war between TaoBao.com and eBay.com is probably the bloodiest one in the short history of China’s internet. Both companies are pouring money on advertising like there’s no tomorrow. eBay throws in the cash money it made in other countries, and TaoBao.com is spending the US 1 Billion its parent company received from Yahoo!. eBay is lagging behind TaoBao and earlier this year was forced to change its business model and stopped charging sellers a transaction fee.

On the other front, the situation of Yahoo!’s Chinese search engine is even worse, as it holds a market share of less then 10% and lags far behind Baidu and Google.

So, is Yahoo! international in a position to force Alibaba’s Jack Ma to cooperate with eBay? I think not. Alibaba and TaoBao are leaders in their market, while Yahoo! China’s search engine is (still) no more than a small fish that happens to carry a familiar name.