Tesco is close to winning a foothold in the fast-growing Chinese market, the Financial Times (FT) has reported.
Tesco: Soon to open in Shanghai?
The company is in 'advanced' talks to buy a 50% stake in Chinese food retail group Ting Hsin International for some $200m, according to the FT.
Ting Hsin operates a total of 25 supermarkets, including 10 in Shanghai, China's pre-eminent commercial centre.
Tesco, which currently does not have a presence in China, would not confirm the newspaper report.
However, the company, which in January announced a new share issue aimed at raising some £810m, is thought to be on the lookout for new overseas acquisitions.
City investors marked Tesco shares 1.75p lower to 253.5p on Thursday as they digested the news.
Tesco already has extensive and highly profitable overseas operations in south-east Asia and eastern Europe.
But it has yet to enter the Chinese grocery market, tipped to register strong growth in years to come as a burgeoning economy raises living standards and boosts consumer spending.
"The Chinese people have started buying their own houses in quite a big way in the last couple of years, so there are a number of things falling into place there which would encourage supermarket shopping," Howard Gorges of South China Securities in Hong Kong told the BBC's World Business Report.
China is also attractive to foreign retailers because of its low labour costs in comparison with the US and Europe.
Other leading western retail groups, including Wal-Mart of the US and France's Carrefour, have already established themselves in parts of China.