Starbucks to Regain Control of China Venture

Starbucks Corp. (SBUX) said Thursday it will regain control of a southern China joint venture as overseas investors gear up for a brewing battle in China's coffee market.

In a deal with its Hong Kong partner Maxim's Caterers Ltd. (search) , the Seattle-based coffee maker agreed to raise its stake in the joint venture from 5 percent to 51 percent.

Terms of the deal weren't disclosed. But Maxim's, Hong Kong's biggest catering firm, will acquire a 30-percent interest in Starbucks' new operation in China's southwestern city of Chengdu as part of the transaction.

The joint venture now operates 13 stores in southern China, where Starbucks is planning to speed up its expansion in a pace that underlines its dominance in affluent cities such as Shanghai and Beijing.

"The decision to expand our relationship with Maxim's is a sign of our confidence and continued commitment to building a great business throughout China," said Christine Day, president of Starbucks' Asia Pacific division.

The deal came just two months after Chevalier iTech Holdings Ltd. (search), a Hong Kong computer and business machine trading firm, declared its ambition to venture into China's coffee market by buying Hong Kong's No. 2 coffee chain, Pacific Coffee (search).

Pacific Coffee helped to popularize Hong Kong's coffee culture after opening its first cafe in 1993. But as a latecomer to the Hong Kong market in 2000, Starbucks has now taken over as the city's biggest coffee chain by adding almost one new cafe a month.

Having made the coffee culture increasingly fashionable in China's tea-drinking population, Starbucks appears ready to build on its dominance in China.

"We will continue our expansion in China and the pace will depend on the development of coffee culture in the country," said Day.

Starbucks now operates 120 stores in China. It said last month it expects China to be its second-biggest market after the U.S.

Besides Pacific Coffee, Starbucks also faces challenges in China from newcomers Blenz Coffee (search) from Canada and McCafe, an up-market coffee house from fast food giant McDonald's Corp. (MCD).