China Resources, a state-owned company, would control 80 percent of the business, while Tesco would control 20 percent, The Wall Street Journal reported Saturday.
With China Resources' 4,000 stores in the country, a partnership would give Tesco "formidable scale and local access, so it is hard to fault the logic of the move," independent retail analyst Nick Bubb said.
The BBC reported that Tesco, the largest British supermarket chain, has 131 stores in China, where sales have flagged recently.
The potential, however, is enormous with $1 trillion in food and beverage sales annually in the country, the BBC said.
Nonetheless, Tesco's market share in China has dropped from 2.9 percent in 2008 to 2.4 percent in 2012, the Journal reported.
Investors, apparently, approve of the talks, which the companies said may not result in a deal.
News of the discussions, however, sent Tesco shares up 1.1 percent, compared to a broader FTSE 100 market gain of 0.2 percent on the day.