The move is aimed at reshaping its international business structure and form a "leading multi-format retailer in China".
The venture would combine Tesco's 131 stores in China with CRE's almost 3,000 stores, called Vanguard, to create what they say would be the leading multi-format retailer in China.
The combined business will have some 10 billion pounds in sales, dwarfing the 1.43 billion pounds Tesco generated on its own in China last year.
Retail analysts said the decision was effectively a surrender by Tesco, showing the difficulty foreign companies have in negotiating with suppliers and regulators in a fast-growing but tricky market.
State-run CRE would control 80% of the new chain while Tesco would have 20% stake..
Tesco and CRE both confirmed the talks in stock market statements.
"The intended partnership would bring together the company's deep understanding of local customers, established nationwide infrastructure and proven track record as a partner with Tesco's global retail expertise, international sourcing scale and supply chain capabilities," CRE said in a statement.
However, neither party has made any guarantee of the merger.
Britain's biggest retailer was trading 0.64% higher at 1.44 pm BST in London.
In a stock market statement, Tesco said the partnership is "consistent with Tesco's stated strategy of focusing on profitable routes to growth in fast-growing but less mature markets, with a disciplined approach to the allocation of capital".
Tesco opened its first store in China in 2004. In 2011, Tesco, the second largest retailer, announced plans to expand business presence in the world's second largest economy.
The Chinese market has been a particular target for retailers in recent times, with the world's biggest retailer, Wal-Mart, reportedly planning a bid for Hong Kong supermarket unit ParknShop. Wal-Mart said they were planning to expand business interests in Asian emerging markets.
In April this year, Tesco posted a bigger-than-expected fall in full year profits - a first in 20 years.
Earlier this month, it was reported Tesco axed 50 senior executives from head offices. The move came as chief executive Philip Clarke begins plans to revive business for UK's largest retailer.
Tesco has also announced plans to exit loss-making business in the US, where it operates under the Fresh and Easy brand.
At home, where Tesco makes about two thirds of its revenues, it is pumping 1 billion pounds into store revamps and new food ranges to revitalise a business that lost ground to rivals and suffered from weak demand for general merchandise, as cash-strapped Britons cut back on discretionary spend.
In China, where Tesco makes around 2 percent of sales, the hypermarket industry is likely to grow to 863.8 billion yuan by 2015, from an estimated 659.6 billion yuan in 2013, according to Euromonitor.
"Its partner brings formidable scale and local access, so it is hard to fault the logic of the move, even if it reads badly for the initial gung-ho expansion into China under previous management," independent retail analyst Nick Bubb said, reports Reuters.
Source: http://www.zimbabwenews.net/index.php/sid/216356395/scat/9d7afd9766a94f28
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