Wal-Mart, CITIC Pacific plan expansion
(China Daily)
Updated: 2005-01-20 13:59

The world's largest retailer, Wal-Mart Stores, will team up with CITIC Pacific to open hundreds of stores on the mainland, a booming but increasingly competitive market, over the next five years, the Hong Kong-based conglomerate said yesterday.

CITIC Pacific and US-based Wal-Mart will invest billions of yuan to open stores in central China as well as the eastern cities of Shanghai and Nanjing, CITIC Pacific Managing Director Henry Fan told Reuters.

"We have a lot of property projects in China and we will welcome Wal-Mart as our anchor tenant," Fan said in a telephone interview.

He said Wal-Mart, which will hold 65 per cent of the venture, was keen not to own its retail real estate on the mainland. "It's a win-win," he added.

Wal-Mart opened its first China outlet in 1996 and now has more than 40 stores in the country, which has a US$240 billion retail market, Asia's largest after Japan.

Foreign retailers looking to expand in China, including France's Carrefour, Germany's Metro and Britain's Tesco, have been hampered by restrictions that finally lapsed last month under China's commitments to the World Trade Organization.

Now, overseas players can own 100 per cent of their stores and set up shop anywhere in the country, although winning local regulatory approval can be difficult.

Wal-Mart and CITIC Corp, the mainland parent of Hong Kong-listed CITIC Pacific, already have a 65/35 joint venture store in Nanjing. CITIC Pacific now plans to take it over, forming the basis of a broader venture between the two, Fan said.

"We are looking for suitable sites and the next store will be in Shanghai," he said.

CITIC Pacific shares closed up 2.65 per cent at HK$21.30, jumping 2 per cent after the report on the planned tie-up.

Headed by one of China's wealthiest men, Larry Yung, CITIC Pacific's holdings include toll roads, power plants and stakes in Cathay Pacific Airways and its rival Dragonair.

"Overall, the concept is positive (for CITIC Pacific)," said Alvin Chong, research director at Sun Hung Kai Research.

China-focused retail stocks enjoyed a bull run last year as investors scrambled for access to surging spending power created by China's economic growth of about 9 per cent.

"Booming consumer demand is a long-term growth story," CLSA said in a recent research note, but warned: "Competition should intensify as retailers accelerate store opening plans to plant their flags in prime sites."

Fan Cheuk Wan, a retail analyst at ABN AMRO, said the Shanghai market was already fiercely competitive and warned that execution risks could be high.

Central China is less crowded and could provide a positive environment to new players.

Besides foreign players, local retailers have been expanding quickly, including Wumart Stores and Lianhua Supermarket Holdings.

Fan said he expects CITIC Pacific's investment in the retail joint venture to start later this year.

He also expects CITIC Pacific's capital spending this year on new investments in steel, infrastructure and environmental protection projects to total 5-10 billion yuan (US$604 million-US$1.2 billion), adding the company has strong cashflow and is under no pressure to raise new funding.

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