Mergers and acquisitions by domestic and foreign players dominated the headlines in China's retail sector last year and are likely to do so again this year as competition heats up in a retail market that rose 13.3 per cent in the first half of 2006 to 3.64 trillion yuan.
Foreign retailers, mainly from Europe and America, are spending hundreds of millions of dollars to buy out Chinese counterparts.
Analysts say the opening of the retail sector to foreign competitors - one of China's obligations under its World Trade Organisation accession agreement - is bound to speed up mergers and acquisitions since competition will squeeze margins and force consolidation.
Before China joined the WTO, it required foreign retailers operating in the country to form ventures with local partners that had to retain a stake of at least 51 per cent. Now foreigners can establish wholly owned China subsidiaries.
Big mainland players, such as Gome Electrical Appliances and Wumart Stores, were among the first China retailers to raise expansion funds by listing on the Hong Kong stock exchange, However, the challenge is the influx of foreign competitors whose international brand names appeal to China's young.
'Local market leaders are big in size but weak in staving off competition in their home markets,' Deutsche Bank said in a recent research report on China.