UPDATE 1-China's Tencent plots expansion, takes on Shanda

(Adds details, executive's comments)

By Vinicy Chan

SHENZHEN, China, June 6 (Reuters) - Tencent (0700.HK), which runs China's largest online messaging community, plans to boost its staff by a fifth and rank among China's top three online gaming operators by the end of 2008.

Tencent, which runs the popular "QQ" community and will join Hong Kong's benchmark Hang Seng Index .HSI on Tuesday, hopes to expand further in online gaming, a market where it ranks fifth with a market share of 7-10 percent versus leader Shanda's SNDA.O nearly 20 percent and Netease's (NTES.O) 14.3 percent.

Tencent Chief Executive Pony Ma predicted online gaming revenue in the country will jump to about 20 billion yuan this year, from 14 billion yuan now.

The firm's stable of games yielded a third of its first-quarter revenue of about 1.43 billion yuan ($206 million).

China's Internet population in February overtook that of the United States to become the world's largest, reaching 221 million, state media have reported. Still, at 16 percent of China's population, that lags a global average of 19.1 percent.

Ma said on Friday the country's Web population would probably peak at around 350 million before growth starts tapering off.

"The biggest challenge going forward will be in sustaining high growth in the Chinese Internet user boom, and to anticipate the habits of these netizens," Ma told a reporters in the southern Chinese city of Shenzhen.

Ma said one driver of growth in coming years would be the launch of high-speed third-generation services, which would allow Tencent and its rivals to offer services on cellphones such as games and multimedia messaging.

SEARCH, EMAIL

On May 24, Beijing launched a long-awaited plan to restructure the industry into a trio of giant, full-service carriers, and grant them 3G licenses. That would boost revenue, Ma said without elaborating.

Tencent, which had signed up more than 317.9 million active users -- or a quarter of the country's population -- at the end of March 2008 for its instant messaging service and claims to be China's most-visited Internet portal, expects to gain half its revenue from online advertising in 5 to 10 years, versus just 10 percent now, Ma said.

The 10-year-old firm is also considering expanding beyond its core entertainment and messaging portfolio.

Ma told reporters in May that Tencent may launch "QQ email" soon. Further ahead, it might consider launching a search engine, a segment now dominated by top Chinese search provider Baidu.com Inc (BIDU.O), which controls three-fifths of that market.

Getting into email and searches would allow the firm to diversify its platform and enhance its profile, Ma said then.

Tencent's stock slid 3.7 percent on Friday, underperforming the market's .HSI slight gain. ($1=6.946 Yuan) (Writing by Edwin Chan; Editing by Lincoln Feast)