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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