Tesco said Wednesday it has agreed to form a joint venture with China Resources Enterprise, but added that interim net profits dived amid "challenging" trade in Europe.

"Tesco and CRE today announce that they have entered into definitive agreements to combine their Chinese retail operations to form the leading multi-format retailer in China," said a statement.

The supermarket chain also revealed that profits after taxation dived 33.6 percent to ??820 million in the first half of its financial year, or 26 weeks to August 24, compared with a year earlier.