The world's largest retailer, known for its anti-union stance, has come under pressure from Chinese authorities in recent months to modify its position.
China's state-run labour union has threatened legal action against foreign businesses over the right to organise workers at their Chinese operations.
Unions currently only operate at one Wal-Mart store, in Canada.
Wal-Mart will only be required to establish a union branch if employees request one.
Experts said the decision had more to do with the state exerting political influence than seeking to provide greater rights to employees. Should associates request formation of a union, Wal-Mart China would respect their wishes.
Independent trade unions are illegal in China, with all workers belonging to the Communist Party controlled umbrella body All China Federation of Trade Unions (ACFTU).
Workers who go on strike over pay and workplace abuses are dismissed while organisers of labour protests face imprisonment.
The All-China Federation of Trade Unions has been pressing the world's largest retailer to establish branches in its stores.
Wal-Mart had previously said that it would not allow unions to operate, saying that it preferred to deal with its 20,000 Chinese employees directly.
"Currently there are no unions in Wal-Mart China because associates have not requested that one be formed," the company said in a statement.
"Should associates request formation of a union, Wal-Mart China would respect their wishes and honour its obligation under China's Trade Union Law."
Li Qiang, China Labor Watch
Experts such as Li Qiang of the New York-based China Labor Watch say the ACFTU has had a poor record in improving labour rights.
"Efforts to set up ACFTU unions in foreign enterprises has been going on for some time," Agence France Presse quoted Mr Li as saying.
"It is still unclear if they will work to protect worker's rights or help local governments accomodate more foreign companies."
Earlier this year, China's national legislature conducted an investigation into how companies were complying with the country's labour laws.
It found that several leading multinational firms, including Wal-Mart, were resisting efforts to set up union branches.
Wal-Mart recently opened its 40th store on the Chinese mainland.
Critics say that Wal-Mart's non-union status in the US has helped to give the firm a competitive advantage, enabling it to offer low wages and benefits.
Wal-Mart, however, claims that the starting rate for its employees is always higher than the federal minimum wage, and in many cases, higher than unionised competitors.
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