Establishment of the union was the initiative of some 30 Wal-Mart employees in the southeast province of Fujian, Xinhua news agency said.

For the past two years the world's biggest retailer had resisted efforts to set up local unions, which are all affiliated with the All-China Federation of Trade Unions (ACFTU) which was established by the ruling Communist Party and claims some 150 million members.

Wal-Mart has always maintained its employees were free to set up unions if they wished and insisted it was "in total conformity with Chinese law".

But at the start of July, senior Chinese official Wang Zhaoguo, who is also president of ACFTU, singled out Wal-Mart for failing to establish unions at its stores while proposing to make it compulsory for foreign firms to set up unions for employees.

According to China's trade union law, all employees have the right to join ACFTU, the country's only legal trade union.

However joining the union offers no guarantee for staff against exploitation, with the ACFTU often criticised by international labor rights groups for favoring business interests over workers' rights.

The nation's trade union law outlaws workers from forming independent unions or organising collective bargaining activities outside the ACFTU.

Since it arrived in China in 1996, Wal-Mart has opened 60 stores in 29 cities and is said to employ more than 30,000 people across the country.

China is a leading source of cheap goods for Wal-Mart's US operations, with 18 billion dollars' worth of merchandise procured in the country in 2004.

Wal-Mart is keen for a bigger slice of foreign markets as it battles sluggish sales growth at home, lawsuits over its labour practices and an image for brutal cost-cutting at the expense of employees and suppliers.

Nowhere is more enticing for foreign retailers than China, where booming consumer spending led by a growing middle class accounted for one-third of the country's economic growth last year.

Wal-Mart employs 1.7 million people worldwide, including 1.3 million in the United States, making it easily the world's largest retailer.

But in China, the group has lagged behind Carrefour of France, which has 78 stores. Britain's Tesco group has 31 stores in China and plans to open another 15 this year. German group Metro is another major foreign player.

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