'TaoBao City' will contain 300 shops and is expected to open in August, its operators told the Chongqing Business Times.
The 12,000 square metre, three-story mall on Shanghai's prestigious Nanjing West Road is operated by a state-owned company which is paying Taobao $1.25m a year to use its name.
The mall operators are currently recruiting shopkeepers from among Taobao sellers. They will be charged rent of about $22 per square metre per month, which is a discount of around 40 per cent on the regular rent.
The operators expect to finish recruiting sellers by mid-July, and open the mall to the public in early August.
Taobao's motive for backing the mall is part of an experiment to break down the barriers that keep many people away from internet shopping, the newspaper said, without naming its sources at Taobao.
The online auction firm, which claims about 20 million members from China's population of more than 1.3 billion, is concerned that frequent misunderstandings and disputes between buyers and sellers are frightening potential customers away from its online trading service.
Taobao hopes that, by combining online and offline shopping, it can provide a gentle introduction to internet auctions for these customers.
If successful the company may open more malls. The reports indicate that the company does not necessarily expect to make an immediate profit from the venture.
Online consumer to consumer auctions in China were worth about $674m in the first quarter of this year, according to Chinese research house Analysys International.
Taobao sellers generated slightly more than 57 per cent of this revenue. The closest competitor, eBay China, had a similar number of customers, but its transactions were worth only 28 per cent of the total, the research firm reported.
Although Taobao has built up a considerable lead over competitors by being the first to introduce commission-free auctions in China, it has failed to expand its market share in recent quarters.
Taobao is owned by China's business-to-consumer auction giant Alibaba, which is Yahoo's local affiliate and operates the main Yahoo site in China. Yahoo invested $1bn in Alibaba last year, and now owns 40 per cent of the company.
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