UPDATE 1-Tsinghua to buy 40 pct of China's BesTV -source

(Adds details)

By Sophie Taylor

SHANGHAI, Feb 28 (Reuters) - BesTV, China's largest provider of Internet Protocol TV, is selling a 40 percent stake to Tsinghua Tongfang Co Ltd (600100.SS) for 150 million yuan ($21 million), a person familiar with situation told Reuters on Thursday.

A BesTV spokesman confirmed that a strategic partnership would be announced later on Thursday but declined to give further details.

BesTV is a Web TV service run jointly by Shanghai Media Group, China's second-largest media group by revenue after state-run China Central Television, and the country's largest fixed-line telecoms company, China Telecom Corp.

BesTV's cooperation with Tsinghua Tongfang, a major domestic computer manufacturer, is a move aimed at bringing together leading firms to stave off competition from foreign firms, the source added.

"SMG has plenty of multimedia resources ... and Tsinghua Tongfang has a leading position in the market for digital devices and technology. This is a pretty strong partnership," the source said.

BesTV has said it expected to have 2 million viewers by the end of this year, versus around 600,000 nationwide currently.

The number of IPTV viewers in China hit 1.14 million at the end of last year, according to AGB Nielsen Media Research. China had 210 million Internet users at the end of 2007, second only to the United States, and is expected to become the world's biggest Web market this year, according to state media.

Foreign players such as News Corp NWSa.N see China's foray into Web TV as a chance to grab a slice of the market.

But Beijing keeps tight control of the domestic media sector, which analysts say makes equity deals with foreign partners unlikely. SMG is the first company in China to receive a licence from Beijing to run IPTV.

Although News Corp, Time Warner Inc (TWX.N) and Viacom Inc (VIAb.N) all have TV channels in China launched over the last few years, each has been limited to mass broadcasting rights in southern Guangdong province, which borders Hong Kong.

Shanghai Media, whose existing broadcast channels already have content partnerships with foreign firms such as CNBC, owned by General Electric Co (GE.N), and the Discovery Channel, part-owned by Discovery Holding Co. (DISCA.OQ), recently launched an English-language TV channel in China aimed at foreign viewers. ($1=7.140 Yuan) (Reporting by Sophie Taylor; editing by Ken Wills)