UK supermarket Tesco in talks to rope in China’s biggest retailer

UK supermarket Tesco is in talks with China's biggest retailer, raising the prospect of the Tesco brand disappearing from the country.

Tesco is in the process of ringing down the curtain on its nine-year solo venture in China in which the retailer invested £1.5 billion - making it the grocer's latest aggressive international expansion to come a cropper.

The world's third-largest supermarket is in talks with China's biggest retailer, state owned China Resources Enterprise for a joint venture which would see Tesco's 131 stores in the country merge with CRE's 2,986 sites under the Vanguard brand.

Tesco would fork out millions in fees for the deal, leaving it with a 20-per cent stake. However this would mean the Tesco name could disappear from the country all together following the integration.

The two retailers are said to have been in talks before Tesco's full year results weere unveiled in April when chief executive Philip Clarke said the company would take a "more cautious" approach towards China.

Three years ago, in his previous role as head of international, Clarke had come out with plans for opening 80 vast shopping malls in the country. The plans included a tesco hypermarket, across China that would have made its retail portfolio bigger than the UK.

However, the failure of its US Fresh & Easy venture which cost £1.8 billion, forced Clarke to refocus his attention on the UK and rein-in excessive spending on expansions.

Tesco would combine its 131 outlets with CRE's Vanguard unit, operating 2,986 mainly hypermarkets or supermarkets across China and Hong Kong. The combined business would net sales of around £10 billion, far exceeding the £1.43 billion generation Tesco reported  on its own in China last year.

According to retail analysts, the decision amounted to a surrender by Tesco, showing the difficulty foreign companies had in negotiating with suppliers and regulators in a fast-growing but tricky market.

According to analysts many foreign retailers have failed to figure out China.

Under the deal Tesco would pay CRE a few hundred million pounds, making the combined business the leading retailer in seven of the eight highest spending areas in China.

The world's biggest and second biggest retailers, Wal-Mart Stores Inc and French retailer Carrefour SA are struggling alone and there have been suggestion that Carrefour too could be seeking a local partner.

Wal-Mart, with 380 stores, has plans for opening 100 over the next three years, while Carrefour, with 70, is looking at 20 new openings a year.