Tesco in China merger talks

Tesco signed a memorandum of understanding with China Resources Enterprise (CRE), and entered into exclusive talks to form the leading multi-format retailer in China, the British supermarket chain announced Friday.

The proposed joint venture would create a business with annual sales of about 10 billion British pounds (11.6 billion euros), said Tesco, which is the world's third-largest retail group after Carrefour of France and US retailer Wal-Mart.

Hong Kong-listed CRE was expected to receive an 80 percent stake in the venture, bringing in about 2,900 stores, while Tesco would add 131 stores and shopping malls in China in return for a stake of 20 percent, the firm added.

Last year, Tesco suffered its first drop in annual profits in two decades, battling against weaker sales in so-called mature markets such as Britain, the United States and Japan.

With the partnership, the UK retail giant seeks to boost its presence in China with less capital expenditure under a strategy to tap fast-growing emerging markets for profit.

The move comes amid a new Chinese economic policy which aims for a more sustainable growth model that favors rising domestic demand over export-driven economic expansion.

As a result, consumer spending in the world's second largest economy grew by 13.2 percent in July, compared with the same month a year ago.

uhe/hc (AFP, Reuters)