China: Adoption of Reform Measure Impacts Tobacco Trade in Chinese Regions

Source from:  Chongqing Business newspaper 07/09/2004

The adoption of a reform measure to separate the manufacturing sector from the commercial sector of China's tobacco industry is directly impacting tobacco trade in Yunnan and Chongqing – two major tobacco-producing regions in southwest China. In 2003, the State Tobacco Monopoly Administration (STMA) adopted the reform measure of separating the manufacturing sector from the commercial sector of the tobacco industry through the establishment of provincial-level China Tobacco Industry Corporations independent from the local tobacco monopoly administrations which double as the local tobacco companies, in an effort fight rampant local trade protectionism in China. Following the separation, the provincial-level tobacco monopoly administrations or local tobacco companies are in charge of tobacco sales in the regions under their jurisdiction while the provincial-level China Tobacco Industry Corporations are responsible for overseeing the operation of the tobacco manufacturing enterprises locally. The sisterly relationship between the two sides is thus cut off. As a result of the adoption of this reform measure, Chongqing City Tobacco Monopoly Administration reached an agreement recently with Hongta Group – the largest Chinese tobacco manufacturer based in Yunnan – on closer cooperation in tobacco trade. Under the agreement, Chongqing City Tobacco Monopoly Administration will manage to assist Hongta Group in developing markets in Chongqing City, to the detriment of local tobacco manufacturers; in return Hongta Group will purchase huge shipments of leaf tobacco from Chongqing and will establish one or two exclusive tobacco-growing bases in the region. Presently, Chongqing City is of an annual cigarette consumption capacity of 800,000 cases (40 billion cigarettes). Over 77percent of the local cigarette market shares used to be taken by cigarettes made in the city. In 2003, Hongta Group sold 215 million cigarettes (43,000 cases) of Yuxi, Hongtashan, Ashima brands, etc to markets in Chongqing City, making the group the third largest cigarette seller in Chongqing. "In the first year following the signing of the agreement, Hongta's cigarette sales in Chongqing may go up by 30 percent," an official with Chongqing City Tobacco Monopoly Administration said, adding that "Hongta will be our leaf tobacco processor and we will be a shop for Hongta in future." For years, tobacco trade in China has been subjected to quota restriction. In purchasing cigarettes from other Chinese regions for trade locally, Chongqing City Tobacco Monopoly Administration must apply to the STMA for trade quotas. Before the signing of the agreement, Hongta's cigarette sales in Chongqing was also subjected to such quota restriction. "Our main target to seek profits," the official said. He explained that as Hongta's cigarette products are more profitable, Chongqing City Tobacco Monopoly Administration has chosen to increase its sales of cigarettes made by Hongta. Annually, Chongqing City produces over 1.7 million dan (85,000 tons) of leaf tobacco in total. Of this total, the local tobacco manufacturers can consume over 300,000 dan (15,000 tons) only. Excluding sales to other Chinese regions, roughly 20 percent of the leaf tobacco produced in Chongqing is put into inventory annually. "Therefore, Hongta's promise to purchase huge shipments of leaf tobacco from Chongqing City is so attractive to Chongqing City Tobacco Monopoly Administration that has been striving to find buyers," the official said. "Before the separation of the manufacturing sector from the commercial sector of the tobacco industry, we were the sister to the manufacturing sector of the local tobacco industry, and our sales was largely in favor of locally produced tobacco products. Since the separation, we have become independent. Therefore, we will not only sell locally produced products, but will also sell products of others in accordance with the market demand, in order to make profits," the official concluded. Enditem