Britain’s biggest retailer, supermarket chain Tesco, says it is in exclusive talks over combining its Chinese operations with those of China Resources Enterprise.

“Noting recent media speculation, Tesco Plc and China Resources Enterprise Limited today announce that they have entered into a memorandum of understanding and are in exclusive talks to combine their Chinese retail operations to form the leading multi-format retailer in China,” Tesco said in a statement on Friday.

Tesco said the proposed joint venture would create a business with sales of about STG10 billion ($A17.18 billion), in which CRE and Tesco’s effective interests are expected to be split 80 per cent and 20 per cent respectively.

The deal would involve CRE combining its CR Vanguard business, which operates 2,986 stores across China and Hong Kong, with Tesco China’s 131 stores and shopping mall business.

“The intended partnership follows a series of highly successful joint ventures between CRE and other multinational corporations and is consistent with Tesco’s stated strategy of focusing on profitable routes to growth in fast-growing but less mature markets,” Tesco said in the statement.

“The transaction is subject to further due diligence and agreement of final terms. There is no certainty that a transaction will occur,” it added. AFP