China National Tobacco Corporation Prepares to Develop International Markets

Source from:  South China Daily newspaper 10/13/2004

China National Tobacco Corporation – the monopoly of China's tobacco industry – appears to be gathering strength to greatly develop international markets in the years to come. Since China's entry into the World Trade Organization (WTO) in 2001, transnational tobacco giants have intensified their competition in markets in China, catching widespread attention. Meanwhile, however, few people are paying enough attention to the strategy of China's tobacco industry to expand overseas. So far, the tobacco industry of China has had little operations in international markets. Only a few Chinese cigarette brands, including Chunghwa and the Gold Deer, can be seen in markets in certain regions in Britain and Russia. For China National Tobacco Corporation, it has focused its energy on how to meet the demand of the domestic market – the largest tobacco market in the world. As the Chinese government is gradually easing restrictions on market access by foreign tobacco giants in accordance with its commitments to the WTO entry, it appears necessary for the tobacco industry of China to actively expand overseas, in an effort to make up for domestic sales lost to foreign tobacco giants. Over the past 10 years or so, there has been a surge in the production and supply of general cigarettes in China, as many consumers are tending to buy relatively cheap cigarettes, particularly at a time when prices of high-quality cigarettes keep growing partially as a result of hikes in taxes. In the United States, general cigarettes account for over 10 percent of the cigarette market shares. Consequently, American tobacco companies have sustained two-digit declines in sales. For China National Tobacco Corporation, pricing might be a breakthrough point. China National Tobacco Corporation is well known for its production of standard non-high-quality cigarettes, which are close to general cigarettes on markets in developed countries. Moreover, Chinese tobacco manufacturers can produce cigarettes at relatively low costs, enabling China National Tobacco Corporation to organize the production and supply of general cigarettes at costs substantively lower than those of its foreign competitors. Once China National Tobacco Corporation starts mass export of cigarette products, competition in international tobacco markets will be escalated. Although it is yet difficult to predict the potential impact of any escalation of market competition as a result of this, sources with the tobacco industry have cautioned that it might be tremendous. Probably, someone can say that as the comparative cost of China's tobacco industry to produce cigarettes has been in fact very low, it will be very difficult for China National Tobacco Corporation to win competition through pricing. Anyhow, the manufacturing industry of China is well known for its capacity to produce and sell cheap goods. If China National Tobacco Corporation, at the very beginning of its expansion to international markets, sets the prices of its cigarette exports at a level of prices of general cigarettes or at a still lower level, even small companies producing general cigarettes will have to sustain huge impacts as a result. Enditem