The deal would give Home Depot a 49 per cent holding in Orient Home, which has plans to grow from 27 to 100 warehouse-style stores by 2010.
Home Depot announced in 2004 that it planned to enter the Chinese market but has not made any move so far. The Orient Home stake is expected to cost Home Depot US$200 million and would enable it to compete with Kingfisher-owned B&Q, which has 22 stores and in the Chinese market.
The highly rated Orient Home is understood to have been in discussions with several western retailers interested in acquiring a stake in its business, but Home Depot has emerged as the favourite. However, no deal has yet been signed.
US retailers are taking an increasing interest in China. Consumer electricals giant Best Buy is expected to enter the market this year, while Wal-Mart is slated as the anchor for a 50-mall building programme run by a consortium headed by US developer Simon Group.
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