Oceanne Zhang, head of Market Insights China, a division of the consulting and research firm Kantar Retail, said the root of Tesco's retreat from China was a failure to understand how to build strong relationships with suppliers and give first-class customers a unique shopping experience.

"Chinese retailing is very different to markets elsewhere and it is very fragmented," Zhang says. "The Chinese want high-quality, cheap products but they also want convenience."

The main difference between the shopping habits of the Chinese and Westerners is that the former tend to buy their food daily rather than weekly, she says.

"But Tesco's supermarket stores and hypermarkets are sometimes too spacious and have for years have concentrated too much on perfecting the mixture of items, which makes it difficult to change direction when needed." For example, store displays should be such that Chinese customers can easily find what they want rather than having to wade through a myriad of goods. Snacks should mean chicken feet, not sausage rolls. And wet-market sections should allow customers to pick out fish from a tank.

"Foreign retailers need to be more flexible because large scale is no longer a recipe for sustainable growth," Zhang says.

Tesco has been in China since 2004 and until recently had very aggressive expansion plans. In the past couple of years it said it would spend billions of pounds and open about 300 stores and scores of shopping malls.

But those plans crumbled as it slashed its exposure in China following big losses. It closed four stores last year and another this year. Last year its sales were about 1.4 billion pounds ($2 billion), a small slice of China's 190-billion-pound modern grocery market, an earlier report by the UK's Financial Times said.

Tesco is now the world's third-largest retailer by revenue behind Walmart of the US and Carrefour of France. Observers forecast the new venture that combines both formidable scale and local access together will enable CRE to imitate the multi-format model of Walmart and Carrefour.

The deal also comes as Asia's richest man, Li Ka-shing, considers selling his Hong Kong supermarket business, worth up to $4 billion. Walmart plans to put in a bid, Reuters has reported.