Chinese house-sharing platform Xiaozhu Inc said on Wednesday that it has raised $120 million in its latest financing round, boosting its financial muscle to better compete with local rivals and US giant Airbnb for more market share.

The current round of funding is led by Yunfeng Capital, a private equity firm co-founded by Alibaba Group Holding Ltd chairman Jack Ma. Existing investors, including Joy Capital, Morningside Ventures and Capital Today, also participated in the funding with TH Capital being the exclusive financial advisor.

House-sharing, a concept hugely popular in western countries, has not been an easy sector for overseas firms in China.

"Only local companies with a strong domestic market focus can hope to gain leadership in the Chinese market," Chen Chi, Xiaozhu's co-founder and CEO, said in a statement.

"Xiaozhu will invest more resources to introduce technologies for further enhancing the security of the house-sharing business and create a sustainable platform for the whole industry," said Chen.

Established in 2012, Xiaozhu is one of the first Chinese home-sharing platforms and now has listings in over 400 locations globally. It raised $65 million last November.

"Taking a cue from Airbnb's business model, Xiaozhu has developed a proven successful model for house sharing in China. Yunfeng Capital is looking forward to witnessing and helping Xiaozhu to grow rapidly," said Li Na, managing director of Yunfeng Capital.

Li Xiao, founding partner of Joy Capital, said Joy Capital was optimistic about the sharing economy. "Now that the entire market is rapidly maturing, we believe that Xiaozhu will continue to lead the house-sharing industry."

Airbnb, which said earlier this year it was looking to expand its presence in the market, denied in April a media report saying it was in acquisition talks with Xiaozhu.

"Xiaozhu has witnessed and interpreted the rapid development of China's sharing economy. The short-term house-sharing platform is only at the start, but with huge growth potential," said Zhang Xinhong, a research director for the sharing economy at the State Information Center.

China's online house-sharing industry has entered an explosive period. This year, the transaction scale of China's online short-term rental market is expected to reach 12.52 billion yuan ($1.89 billion), up 42.6 percent compared with 8.78 billion yuan last year.