The online auction giant would seem to have every incentive to introduce PayPal to China, which is already its third biggest market outside North America in registered-user terms.

So why is it taking so long?

eBay's most senior executives have talked frequently about bringing PayPal to China. There was even a plan to launch it in the first quarter of 2005, but the closest any company spokesman will come now to making a commitment is ''by the end of this year.''

Some observers suggest that eBay's Western ways are just not well adapted to the Chinese reality. The company may have failed to reckon with an ingrained reluctance on the part of Chinese consumers to part with money before goods are received.

eBay entered the mainland market by acquiring Eachnet in July 2003. Since then, much of its original management team has been replaced by staff from eBay Taiwan. The newcomers include the key man at eBay China, chief operating officer James Zheng.

The idea is to have people of Chinese culture, but steeped in Western management philosophy, running the operation. But even Taiwan may be too different from the mainland to allow for an easy transfer of expertise.

''eBay is struggling in the China market. It is not as easy as they thought,'' said TR Harrington, a partner in Shanghai-based Mithras Consulting Group.

The American company's rivalry with homegrown Taobao - started by local entrepreneur Jack Ma as an extension of his Alibaba B2B marketplace - is increasingly fierce. Softbank, the high-powered Japanese technology investor, is one of Taobao's backers.

The online auction market is growing fast. Last year, according to market research firm iResearch, it rose by 217 percent to 3.4 billion yuan (HK$3.2 billion); by 2007, it is expected to reach 21 billion yuan.

At the end of 2004, iResearch estimated eBay's share of the Chinese market at 65 percent, versus Taobao's 29 percent. 1Pai, a joint venture between Yahoo! and Sina, was a distant third.

Recent figures from the top two firms suggest Taobao has greatly improved its standing since.

eBay China said its total transaction volume in the first quarter this year was 820 million yuan and Taobao claimed volume of 960 million yuan.

Though eBay levies listing fees, it slashed them in May to halt the loss of market share to its rival's free service. For an item priced at 100 yuan, for example, eBay now charges one yuan where it charged two yuan before.

The American firm has also raised its marketing and promotion efforts. Earlier this year, it said it would spend US$100 million (HK$780 million) to develop the market in China.

The battle lines have been drawn to include online payments which, apart from the role they play in auctions, are also a potentially lucrative form of stand-alone business.

While eBay marked time with PayPal, Taobao launched its own payment solution, AliPay, last October.

``AliPay's entry is driven by a local China strategy, based on strong relationships, and that is driving faster market penetration,'' said Harrington.

While AliPay is still small, processing only about US$12 million of transactions a month, it is the first online payment program in China to be well accepted by consumers. And 79 percent of the sellers in Taobao recommend it, according to the company.

``It is just beginning,'' said Porter Erisman, vice president of Alibaba. Where AliPay was initially reserved for transactions on Taobao, merchants with their own online stores can now use it to accept payments and make transfers.

Erisman is confident that, even after PayPal comes to China, AliPay will preserve its dominance. ``PayPal depends a lot on credit cards, which are not widespread in China,'' he said.

In places where the online auction industry is more mature, the buyers' and sellers' past transaction records as posted on the bidding site are generally deemed sufficient to establish the trustworthiness of the parties.

This is not the case in the mainland. Lack of trust is a key issue in Chinese commercial society, and one that, according to Erisman, PayPal fails to address.

The problem is not a lack of payment infrastructure, for most banks offer online banking and funds transfer services.

Rather, it is settlement risk. Buyers don't trust sellers to hand over the goods any more than sellers trust buyers to hand over the money.

To help overcome these mutual suspicions, AliPay is set up as an escrow account. The money the buyer pays in is not allowed to leave the account until the goods have been received. The process usually takes two weeks. In a dispute, the buyer can stop payment.

PayPal, on the other hand, is fast and easy to use, but it doesn't address settlement risk. Its secure payment platform keeps personal data safe and allows money to pass smoothly from one account into another. But there is no way to stop a seller from running off with the money before delivering the goods.

iResearch analyst Kelly Huang said building up trust is essential for the online auction business to grow in China, and escrow accounts are probably the way to go.

In a survey iResearch conducted last year on the behavior of Internet users in China, the three main reasons cited for not taking part in online auctions were inability to judge product quality, risk and a lack of reliable information online.

In response to AliPay, eBay in November launched an escrow service in China called An Fu Tone. It said it is gaining acceptance, though it declined to reveal transaction volumes.

eBay chief executive Meg Whitman is scheduled to visit China this summer, and the delayed launch of PayPal is expected to be on her agenda.

Consultant Harrington said that, settlement concerns aside, PayPal may also have been caught offguard by the vagaries of China's ``rapidly evolving'' regulatory climate.

``As compared to PayPal's introduction in Europe, China is taking longer. However, that does not seem to have been expected,'' he said.

In Europe, the process is much simpler. PayPal is licensed by Britain's Financial Services Authority, which granted it the status of ELMI, or electronic money institution.

The laws governing ELMIs are set out in the European Union's e-money directive, which has been incorporated in the national laws of the member states.