* HSI +0.3 pct, H-shares -0.4 pct, CSI300 +0.1 pct
* Profit-taking knocks ChiNext off record high
* China South City at record high after Tencent investment
* China liquidity woes linger, PBOC skips open market ops
By Clement Tan
HONG KONG, Jan 16 Strength in Tencent Holdings shares propped up the Hang Seng Index early on Thursday as investors cheered the Chinese internet giant's HK$1.5 billion ($193.5 million) investment in logistics and warehouse firm China South City Holdings.
Strong gains by the two stocks came as the broader Hong Kong and mainland markets stayed sluggish. Liquidity worries lingered after the People's Bank of China abstained from injecting funds for a seventh straight scheduled open market operation.
"This liquidity issue in the mainland is going to persist, at least until end-month, leading into the Chinese New Year," said Larry Jiang, chief investment strategist at Guotai Junan International Securities.
"For stocks like Tencent, its expensive-looking valuation is not too much of an issue with investors. They are looking to build an empire that could likely surpass the likes of Amazon," Jiang added.
At midday, the CSI300 of the biggest Shanghai and Shenzhen A-share listing was up 0.1 percent, while the Shanghai Composite Index was flat. The ChiNext Composite Index of mainly technology startups listed in Shenzhen, which closed at a record high on Wednesday, slid 1.1 percent.
The Hang Seng Index crept up 0.3 percent to 22,969.5 points, while the China Enterprises Index of the leading offshore Chinese listings in Hong Kong slipped 0.4 percent.
Tencent, a major component on the Hang Seng benchmark, climbed 3.1 percent to a record high and is now up about 6 percent this year after surging 99 percent in 2013. China South City spiked 54 percent on Thursday, also to a record high.
Tencent is now trading at 35 times forward 12-months earnings, a 29 percent premium to its historical median, according to Thomson Reuters StarMine.
On Wednesday, Tencent said it had agreed to buy 680.3 million new shares in China South City, representing around 9.9 percent of that firm's enlarged share capital.
The investment in China South City pits it against Alibaba Group Holding Ltd, the e-commerce group founded by former English teacher Jack Ma, whose expected stock market flotation could value it at more than $100 billion.
The rivalry between the two companies has ramped up in recent months, with Alibaba pushing its own mobile messaging app and setting up its own mobile gaming platform. Alibaba controls about 80 percent of China's e-commerce sector.
Neway Valve (Suzhou) Co Ltd on Friday will become the first new listing in the mainland after approvals resumed earlier this month following a halt of more than a year.
With a backlog of more than 700 initial public offering applications and about 50 approved so far, stock investors have frowned at the prospect of increased competition for limited funds. Larger offerings could lock up considerable amounts of capital.
Shaanxi Coal Industry Co Ltd has slashed its IPO target by more than half and now seeks to raise up to $660 million. The move came amid regulatory pressure on listing companies to ensure that the resumption of IPOs in China is not marred by unrealistic valuations.
In Hong Kong, China Coal sank 3.2 percent, while China Shenhua Energy shed 2.3 percent.
The China Securities Regulatory Commission said late on Wednesday that it has begun inspections of IPO pricing behavior, targeting 13 underwriters and 44 institutional investors.