Bertelsmann has disbanded one of its main divisions in China in the face of persistent losses, underscoring the difficulties foreign media companies confront doing business in the country, according to company employees.

The move to break up the local arm of Bertelsmann's Direct Group comes after years of disappointing progress in China in spite of a partial opening of the book retail and distribution sector to foreign investment.

In China, Direct Group unit ran the country's third- largest online book retailer, a book club and a chain of book stores but had struggled to establish a strong presence in what is a highly challenging and tightly regulated market.

“Most of the stores and infrastructure will be shut down,” according to a company employee who asked not to be named. “Bertelsmann has invested millions and millions of euros and is yet to see any return from this unit.”

Operation of the company's online book store have been transferred to Bertelsmann's Arvato Group, which specialises in corporate services, according to employees, who added that Direct Group no longer exists in China. All of Direct Group's senior China-based managers have already left the company.

Hartmut Ostrowski, who took over as Bertelsmann's chairman and chief executive at the start of the year and was in Beijing last week, has said Direct Group is under strategic review globally and all options are being considered, including a possible sale of the unit.

Bertelsmann has put its US arm of Direct Group, which has annual revenue of about $1bn, up for sale.

In China, where Direct Group made up less than 25 per cent of the firm's overall business, Bertelsmann decided to disband the group rather than look for a buyer.

“The company is taking the cleanest and easiest option by shutting Direct Group down in China rather than trying to find a buyer,” said one person familiar with the matter. “It's seen as a lost cause.”

Bertelsmann representatives in China and Germany declined to comment.