Tesco to take on Wal-Mart in China with stake in supermarket chain

Tesco is understood to be closing in on a deal that would give it a toehold in the world's biggest food retail market - China - just weeks after it signalled its appetite for expansion by raising a £1.6bn war chest.

The supermarket chain is thought to be mulling a $200m (£110m) bid for a 50 per cent stake in 25 Chinese superstores, which would pitch it against international rivals Wal-Mart of the US and France's Carrefour.

Although a Tesco spokesman played down reports suggesting a deal was imminent, he said the group "had never made any secret about our interest in China" and was "talking to several possible partners". Tesco scouts had spent the past two years in China assessing consumer spending patterns and looking for potential partners and available sites, the spokesman said, adding: "We are deliberately being very cautious about China and we are quite happy to take our time."

Tesco is thought to be stalking Ting Hsin International Group, which is controlled by four Taiwanese brothers and owns the Chinese chain Hymall. The brothers had hired J.P. Morgan to find a buyer for the stake, reports said yesterday.

Global retailers are keen to pounce on the Chinese market before restrictions under the country's World Trade Organisation agreement come into force next year that will force foreign retailers to seek government approval for owning more than 30 stores in China.

Carrefour plans to almost double its current estate to 70 sites by the end of this year, while Wal-Mart opened eight new stores in 2003, taking its total to 33.

Hymall itself, whose estate includes 10 hypermarkets in Shanghai, is targeting a fivefold expansion by 2008, when it hopes to rank among China's top three retailers.

Tesco is seeking opportunities to expand outside the UK, where its 27 per cent market share bars it from acquiring all but convenience stores. It has stores across Asia, from Thailand to South Korea, and sales from the region leapt by 54 per cent during the first half.

Although Tesco would struggle to meet its internal criteria for expanding overseas - to be number one or two in each new market - by moving into China, the spokesman hinted that it could bend the rules if the opportunity was right. "We do what works best in each market," he said, noting that its acquisition last year of Japan's C Two-Network Co had given it only a small base from which to work in that market.