MARK O'NEILL in Shanghai

Managing relations with the mainland government is more difficult than competing with global rivals, according to a senior manager of Carrefour, the most successful foreign retailer in China.

James Lo, regional manager for Carrefour in Shanghai, said yesterday that relations with the government and the ability to lobby and reach senior people was the toughest challenge for the retail giant, rather than competition from domestic or foreign rivals such as Wal-Mart.

For this reason, Carrefour was likely to keep its joint-venture partners after December 11 because they had local knowledge and relations with local governments, Mr Lo told the China Alumni Association of international business school Insead.

On December 11, China will open the retail market further by lifting geographic restrictions on foreign retailers and allowing them to operate as wholly owned ventures.

Carrefour, the world's second-biggest retailer, has 32 joint ventures and 33 partners in the mainland.

It ranked fifth in China last year, with 41 stores and sales of 13.4 billion yuan, according to figures from the Ministry of Commerce.

It has 53 stores with a total investment of €350 million ($3.6 billion) and plans over the next three to five years to invest an additional €600 million in 40 more stores.

Carrefour is in 18 of the 22 Chinese cities with a population of more than two million and will be in all but one, Changchun, by the middle of next year.

"In Changchun, the business is too poor," Mr Lo said.

In addition to its hypermarkets, the company also operates more than 140 Dia discount stores in Beijing and Shanghai - each with a shopping space of 300 square metres - and the chain of Champion supermarkets in Beijing.

But Mr Lo said: "We will not open the Champion stores in Shanghai because the market here is too competitive."

The company has 28,000 employees in the mainland of whom 79 are expatriates.

Mr Lo said that the company began to turn a profit in the fourth quarter of 2000 and had been profitable since then. He declined to give figures.

The liberalisation after December 11 would bring risks as well as benefits, said Mr Lo.

"There are too many opportunities. You might walk into a trap. Internal organisation is very important," he said. "The market is not well-structured. It has an uncertain environment."

In contrast to Europe and the United States, nearly all the business in Carrefour is done with cash, not credit cards.

"The charge fee in China is very high, 1.2 per cent. Expats like to use credit cards - but I will launch a promotion at our Gubei store [in Shanghai] to persuade them to use cash instead," Mr Lo said.