Prices of Key Chinese Cigarette Brands Drop at News of Marlboro Entry

Source from:  ycwb.com 04/28/2005

The retail prices of two key Chinese cigarette brands - Chunghwa and Furongwang - have dropped at the news of Marlboro's expected start of operations in China. On April 21, The Wall Street Journal reported that Altria Group Inc. -- the parent company of Philip Morris -- is close to signing an agreement with the Chinese government on permitting it to produce and sell Marlboro cigarettes in China. If signed, the agreement will permit Philip Morris International to license two of China's largest state-run tobacco companies to produce and sell Marlboro cigarettes in China, the newspaper said. But it said there was also a chance the talks between the two sides could end up fruitless. Sources with China's tobacco industry have estimated that the annual output of Marlboro in China could be 2 billion cigarettes. The dissemination of this news has prompted key Chinese tobacco manufacturers to lower the retail prices of their cigarette products. In the southern Chinese city of Guangzhou, the retail prices of the soft-packaging Chunghwa and the blue-tipped Furongwang - the two best-selling Chinese cigarette brands - have respectively dropped to 600 yuan (72 U.S. dollars) per carton from the levels of 630 yuan (75.9 U.S. dollars) per carton and 650 yuan (78.3 U.S. dollars) per carton. In recent interviews with the Yangcheng Evening News newspaper of China, sources with the tobacco industry of China said that the move of Chunghwa and Furongwang to simultaneously lower their retail prices at the new of Marlboro's massive entry into the Chinese cigarette market was of far-reaching significance, suggesting that the two might be joining hands in taking countermeasures against the transnational tobacco giant. "Even before Chinese tobacco manufacturers become powerful enough, it will be very difficult for foreign tobacco manufacturers to break into the Chinese cigarette market," said a source with the Foreign Operations Department of the State Tobacco Monopoly Administration (STMA). "China's basic policy of State tobacco monopoly has remained unchanged. The import of foreign cigarettes is still exclusively operated by China National Tobacco Import-Export Corporation, under the import quotas promised by China in joining the World Trade Organization (WTO) in 2001. Under such a situation, the import of foreign cigarettes into China is not likely to increase in the style of explosion. Therefore, the retail prices of foreign cigarettes in China will not change significantly, and Chinese cigarette brands still have an advantage in pricing," the source said. Meanwhile, experts with the Economic Policy Research Center of the STMA analyzed that over the next few years, the policy of China's tobacco industry to reject foreign investment in establishing operations will not be eased while corporate taxes paid by the tobacco industry is still a major source of revenue for the State finance. Only when the proportion of taxes paid by the tobacco industry in the total of revenue for the State finance becomes smaller, will the Chinese government consider open the tobacco industry to foreign investment, they explained. Although the prospect for taking a foothold in China is not so bright as imaged, transnational tobacco giants will not easily give up the Chinese cigarette market, which accounts for nearly a third of all cigarettes consumed worldwide annually, they said. Enditem