Customers shop at a Tesco outlet before its closure on Sept 21 in Changning district, Shanghai on Sept 19, 2013. The British retail giant announced on Wednesday that it has signed an agreement with China Resources Enterprise Ltd (CRE) to create a retail joint venture in China. [Lai Xinlin / Asianewsphoto]

LONDON -- British retail giant Tesco PLC announced on Wednesday that it has signed an agreement with China Resources Enterprise Ltd (CRE) to create a retail joint venture in China.

Tesco, which entered the Chinese market in 2004, said in a statement that the two companies "have entered into definitive agreements to combine their Chinese retail operations to form the leading multi-format retailer in China."

The joint venture would create a business with sales of some 10 billion pounds ($16.2 billion) in which Tesco will have a 20 percent stake, and CRE the remaining 80 percent.

The joint venture, aiming to become the leading retailers in seven of the eight most populous and economically advanced provinces in China, would combine Tesco's 134 stores as well as its shopping mall businesses with CRE's 2,986 stores.

Tesco will make cash contributions totaling 345 million pounds to the joint venture, and will have two seats on the board of 10 members.

"We are delighted to work with CRE to create the leading Chinese retail business. Through this deal we have a strong platform in one of the world's most exciting markets and it will move us more quickly to profitability in China," said Tesco CEO Philip Clarke.

"This is very good news for customers and shareholders and a further demonstration of our commitment to build sustainable, profitable businesses, establish multichannel leadership in all of our markets and pursue disciplined international growth," he said.

CRE CEO Hong Jie said the joint venture "brings together the individual strengths and advantages of Tesco and CRE, a compelling combination of local customer insights and international retail best practice, creating success and value for both groups, as well as propelling the internationalization of China's retail industry."

Tesco, which is Britain's biggest retailer, on Wednesday reported a 23.5-percent drop in the group's pre-tax profits in the six months to August 24, due to the tough conditions in Europe and Asia.

Tesco said profits fell 67 percent in Europe to 55 million pounds, while Asian profits, excluding China, dropped 7.4 percent to 314 million pounds. Its trading profit in Britain rose 1.5 percent to 1.13 billion pounds.

Tesco's share plunged 3.54 percent at midday trading on Wednesday on the London stock market after the announcement of profit drop during the first half of its financial year.

Earlier reports

Tesco to close its first China store

CRE, Tesco may submit bid for HK retail chain

Not such a super market for the overseas giants

Tesco to merge China business with SOE

Foreign retailers shop for new growth model