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Tesco appears to scale back its online ambitions for China with news of potential merger

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Tesco had ambitious plans to expand its online operations in China – but today it confirmed it was on track to merge its operations in the country with a state-owned company, China Resources Enterprise (CRE).

Tesco said today that it expected to have a 20% stake in the merged company, which would “bring together CRE’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.”

The joint venture, for which a memorandum of understanding has been signed, would have sales of around £10bn. But since Tesco has 131 stores in China, as well as its online business, and CRE has 2,986 CR Vanguard stores across China and Hong Kong, it is clear that the UK supermarket group would be very much the junior partner.

It’s not so long since Tesco was considering a major expansion for its online grocery service across China. The service, which already operates in markets from Thailand to Eastern Europe, launched in Shanghai in March. Then Frans Falize, international director for told the Telegraph that the company could go on to move into 50 Chinese cities. Even then, though, there was acknowledgement of the difficulty of the “extremely complicated” Chinese market for new entrants.

Today it seems Tesco has found a less complicated way forward. Its proposed joint venture with CRE, it says today, “is consistent with Tesco’s stated strategy of focusing on profitable routes to growth in fast-growing but less mature markets.”

However the company also emphasises that there is “no certainty that a transaction will occur,” subject as it is to further due diligence and agreement of final terms.

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