Supermarket giant Tesco is in talks with China's largest retailer to merge their operations in the country in a move marking a major shift in strategy over one of its key growth markets.

Tesco said the merger with CR Vanguard — owned by state-run China Resources Enterprise (CRE) — would create a business with more than 3,000 stores and combined sales of around £10 billion.

But the deal leaves a question mark over the future of the Tesco brand in China and would bring an end to the group’s independent business in one of the world’s fastest growing retail markets.

Tesco would own a stake of 20 per cent in the joint venture after bringing its 131 stores in the country together with Vanguard's 2,986 shops across China and Hong Kong.