New Tobacco Groups Aims to Develop Big Competitive Brands

Source from:  Spring City Evening News, Economic Daily newspapers 11/14/2005

Hongyun Group - a new tobacco group incorporated on the basis of the merger of two key cigarette factories in southwest China's Yunnan Province - aims to spend the next three to five years developing big competitive cigarette brands each with an annual output of over 1 million cases (over 50 billion cigarettes). With an annual cigarette production capacity of 2.4 million cases (120 billion cigarettes), Hongyun Group - incorporated on the basis of the merger of Kunming and Qujing Cigarette Factories - was inaugurated on November 8, upon completion of the process of merger and incorporation. It has become the second largest Chinese tobacco manufacturer, only after Hongta Group. [img border=0 hspace="4" vspace="4" align="left" src=http://www.tobaccochina.com/english/picture/051111tttp.jpg] At the inaugural ceremony, Board of Directors Chairman Xu Ying and President Zhu Shaoming of Hongyun Group and General Manager Zhang Shuichang of Yunnan Provincial China Tobacco Industry Corporation jointly held a press conference to unveil major development targets of Hongyun Group and answer questions raised by dozens of Chinese and foreign reporters. "The establishment of Hongyun Group is based on the imperative to meet competition from transnational tobacco giants, the structural reform of China's tobacco industry and the development of the tobacco industry of Yunnan," Zhu said in briefing the reporters on the process of incorporation and the status quo of Hongyun Group. As far as the development of transnational tobacco giants is concerned, their merger, acquisition and restructuring are all unexceptionally intended to realize rapid expansion, according to Zhu. He said that China's moves to lift import quotas on foreign tobacco products in January and implement the Framework Convention on Tobacco Control in the country are all meant to internationalize the domestic market, as the tobacco industry of China faces serious challenges. Zhu recalled that the State Tobacco Monopoly Administration (STMA) initiated a fundamental structural reform of China's tobacco industry in 2001, to enable it to develop big enterprises, big markets and big brands. The reform is mainly characterized with corporate shutdown, acquisition, merger, association and reorganization as well as rapid reduction of the existing number of cigarette brands. So far, the number of existing tobacco manufacturing enterprises in China has declined to a total of 46 from the level of 85 in 2003, while the number of existing Chinese cigarette brands has declined to more than 200 from the total of 582. Therefore, competition among Chinese tobacco manufacturers in future will be competition among powerful enterprises, Zhu noted. As for the tobacco industry of Yunnan, it makes up a very big part of the tobacco industry of China. Yunnan has had 22 entries into the Catalogue of Top 100 Chinese Cigarette Brands issued by the STMA in August 2004, in a move to reduce the existing number of cigarette brands and improve the structure of cigarette products in China, according to Zhu. Hongyun Group alone has had 10 entries into this catalogue. Besides, of the three big Chinese tobacco manufacturers each with an annual cigarette production capacity of over 1 million cases (over 50 billion cigarettes), two are based in Yunnan, he said. However, Zhu said, the tobacco industry of Yunnan still has potential to be tapped. To meet the grand development targets set by the provincial government, the tobacco industry of Yunnan has chosen to merge tobacco manufacturing enterprises to form resultant forces, he explained. According to the structural reform plan of the tobacco industry of Yunnan, besides the incorporation of Hongyun Group on the basis of the merger of Kunming and Qujing Cigarette Factories, the two other remaining tobacco manufacturing enterprises in Yunnan -- Hongta Group and Honghe Cigarette Factory -- will be merged to form the new Hongta Group. On September 10, 2004, the tobacco industry of Yunnan completed the re-incorporation of its previous nine cigarette factories in Yunnan -- Kunming, Yuxi, Honghe, Qujing, Zhaotong, Chuxiong, Dali, Chuncheng and Huize Cigarette Factories -- into four ones: Hongta Group, Kunnming Cigarette Factory, Honghe General Cigarette Factory and Qujing Cigarette Factory. All the four were among the 36 key Chinese tobacco manufacturers designated by the STMA. [b]ENLIGHTENMENT OF INCORPORATION OF HONGYUN GROUP[/b] Speaking on the same occasion, Zhang Shuichang, General Manager of Yunnan Provincial China Tobacco Industry, said that the incorporation of Hongyun Group does not only mean the establishment of the second largest Chinese tobacco manufacturer, but also, more significantly, has brought enlightenment to the whole tobacco industry of China. Firstly, the incorporation of two cigarette factories into a tobacco group company has set an example for the structural reform of tobacco manufacturing enterprises in China. In the past, the choice of directors was vital to the operation of cigarette factories. Namely, the development of cigarette factories would be entirely reliant on the director. In contrast, the development of the group company relies on scientific, democratic and lawful decision-making, and is in line with international standards. Secondly, the incorporation of Hongyun Group means a challenge. In China, there are only seven provinces or provincial-level regions each with an annual cigarette production capacity of 2 million cases (100 billion cigarettes) or higher. Hongyun Group alone has an annual cigarette production capacity of 2.4 million cases (120 billion cigarettes). Therefore, the incorporation of Hongyun Group will spark a new round of competition among regional tobacco industries in China in structural reform leading to the enlargement of capacity. And thirdly, the incorporation of Hongyun Group has prompted people to consider what on earth Chinese tobacco manufacturers want to create. In reality, what they need to create is a kind of