China: STMA Official Foresees Continued Reduction of Existing Cigarette Brands

11/19/2008

Deputy Director-General Li Keming of the State Tobacco Monopoly Administration (STMA) has predicted that the number of existing cigarette brands in China will continue to shrink, as tobacco manufacturers in the country are in an era of increasingly intense competition with big and powerful brands and with rapid development of new products. In an address to a forum on the development of cigarette brands held in Yuxi City of southwest China's tobacco-producing Yunnan Province on November 15, Li Keming said that giving priority to the development of key cigarette brands and creating a situation of moderate and orderly competition of tobacco manufacturing enterprises and brands has always been a major guideline for the development and reform of the tobacco industry over the past few years. Li Keming noted that the number of existing cigarette brands in China has kept declining over the past few years, from a high of 1,181 in 2000 to a low of 173 in 2007, and that from January to October, the number further dropped to a total of 154. In the first 10 months of 2008, the aggregate sales volume of the Top 20 Chinese cigarette brands reached 16.03 million cases (801.5 billion cigarettes), accounting for 42.5 percent of the total cigarette output of China's tobacco industry, generating 352.846 billion yuan (50.4 billion U.S. dollars) in sales income, accounting for 63 percent of the total sales income earned by the tobacco industry. The amount of manufacturing and commercial taxes and profits generated by the tobacco industry increased from 168.97 billion yuan (24.1 billion U.S. dollars) in 2003 to 399.76 billion yuan (57.1 billion U.S. dollars) in 2007, quadrupling in a period of just four years. In the address, Li said that the STMA will take steps to further improve the relevant systems and mechanisms beneficial to the development of national-level cigarette brands, further promote inter-provincial reform of the structure of existing cigarette brands, realize rational flow of essential factors of production and optimization of the structure of products, and further accelerate the development of more than a dozen national-level key competitive cigarette brands. Besides, in the face of increasingly intense competition at international tobacco markets, Chinese tobacco manufacturers have achieved substantial progress in the ongoing structural reform marked by corporate merger and acquisition. Li Baojiang, deputy director of China Tobacco Economy Research Institute, said that under the joint effects of policy guidance, market competition and administrative promotion, the tobacco industry of China has undergone the processes of closing down small cigarette factories, reforming the structure of medium-sized cigarette factories, conducting provincial structural reform marked by merger and acquisition, and launching inter-provincial structural reform characterized with association and merger over the past few years. Over the past five years, the number of existing tobacco manufacturing enterprises in China has declined to a total of 31 from a high of 123. “Computed by the annual sales volume, six Chinese cigarette brands actually ranked themselves among the Top Ten cigarette brands in the world,” Li Baojiang said. Although the tobacco industry of China has made remarkable achievements in reform and development, it is still highly reliant on the domestic market. Presently, the tobacco industry of China operates 11 cigarette factories in seven other countries. But in 2007, the overseas sales volume registered by the tobacco industry of China reached only 1.1 percent of its total sales volume, far below the average level of transnational tobacco giants. In particular, the overseas sales volume of Philip Morris International reached 100 percent in the year while British American Tobacco 99.5 percent. Talking about the strategy of China's tobacco industry to develop international markets, Li Baojiang said that the tobacco industry of China will adopt a three-step approach in this endeavor, with the first step being the establishment of cigarette factories and marketing networks abroad, with the second step being the development of capital operation, and with the third step being the launch of transnational merger and acquisition. Enditem