Oct. 17 (Bloomberg) -- Wal-Mart Stores Inc., stymied this month in its attempt to expand in Japan, plans to invest $1 billion in China by buying Trust-Mart, doubling its stores in the country's $841 billion retail market.

The deal needs regulatory approval and may not be announced for weeks, said a person familiar with the proposed acquisition yesterday, who declined to be identified before an announcement. Trust-Mart spokesman Huang Shiying confirmed it's in talks with Wal-Mart and other overseas companies. No buyer or price has been decided for the grocery and appliance provider, he said.

Expansion in the world's fourth-largest economy may counteract slowing U.S. sales and bolster revenue. Wal-Mart's overseas ambitions were thwarted by its mid-year withdrawal from Germany and South Korea and as Japan's Aeon Co. won exclusive rights to buy supermarket operator Daiei Inc. this month.

``This will give them more scale in a market that is going to be increasingly more important for them,'' said Patricia Edwards, a Seattle-based money manager at Wentworth, Hauser & Violich, with $8.2 billion in assets including Wal-Mart shares.

Wal-Mart initially will purchase 31 stores from Trust-Mart, which controls more than 100 shops, and gradually increase its holdings, according to the Wall Street Journal, which reported the deal earlier yesterday. That would give it a bigger foothold in China than French rival Carrefour SA.

The Bentonville, Arkansas-based company already runs more than 60 stores in China and has said it plans to open 20 more this year. Wal-Mart spokeswoman Beth Keck declined to comment.

Shares of Wal-Mart fell 14 cents to $48.32 at 4:27 p.m. in composite trading on the New York Stock Exchange. They've risen 3.3 percent this year.

China Trade

Wal-Mart imported about $18 billion of goods from China last year, making it the country's eighth-largest trading partner, ahead of the U.K. and Russia. The company had sales of $312.4 billion in the year to Jan. 31. International revenue grew 11 percent, compared with 9.5 percent overall.

The retailer lost an opportunity to expand its Seiyu Ltd. unit in Japan earlier this month when Marubeni Corp. chose Aeon to buy stakes in supermarket operators Daiei and Maruetsu Inc., in a deal that may be valued at 75 billion yen ($627 million).

Wal-Mart wants to generate a third of its revenue and profit overseas, compared with a fifth currently. The planned acquisition comes after the company's sale of its German stores in July at a loss of $1 billion and its May exit from South Korea.

Trust-Mart, founded in 1997, has expanded to more than 100 stores including franchisees in more than 20 provinces in China, the company said on its Web site. It has more than 30,000 employees selling about 20,000 items, including groceries, home appliances, clothing and food, in stores with total space in excess of 400,000 square meters.

Local Takeovers

China deregulated its retail market in December 2004 to meet World Trade Organization pledges, allowing overseas retailers to operate in the country without local partners. To meet fiercer foreign competition, Chinese companies have stepped up consolidation, with Shanghai Bailian Group Co. combining four Shanghai companies to become the country's biggest retailer with 6,000 stores.

Retail sales grew 13.8 percent in August as rising incomes spurred consumer spending in the world's fastest-growing major economy. Premier Wen Jiabao has raised minimum salaries and increased welfare spending to boost consumption and reduce China's dependence on exports and spending on factories.

Taiwan Connection

A unit of Taiwan's Chengda Group, Trust-Mart had sales of 13.5 billion yuan ($1.7 billion) last year and net income of ``less than 1 percent'' of revenue, spokesman Huang said today.

Winston Wong, son of the founder of Formosa Plastics and previously an honorary board member of Trust-Mart, has severed ties with the company, Huang said.

``It's true we have been in touch with Wal-Mart and we've sent our senior managers to its U.S. headquarters to learn from the company,'' said He Delai, assistant to Trust-Mart President Chairman Yu Yuejiang, said in a telephone interview today. ``We will introduce Wal-Mart's computer system to improve our management.''

Last month, Wal-Mart introduced a credit card with Bank of Communications Ltd. in China.

The U.S. retailer said last month that two-thirds of its stores in China have set up trade-union branches. The company, with 33,000 employees there, is cooperating with the All-China Federation of Trade Unions.

Allowing its Chinese workers to unionize follows criticism from workers' groups that Wal-Mart exploits lax employee protection in the world's fastest growing major economy to keep costs low.

To contact the reporters on this story: Samuel Shen in Shanghai Sshen3@bloomberg.net Lauren Coleman-Lochner in New York at llochner@bloomberg.net.

Last Updated: October 17, 2006 03:23 EDT