Jilin Provincial Tobacco Co., Ltd. in northeast China's Jilin Province held on June 19 a meeting of expert demonstration of planned readjustment in its tobacco manufacturing operations in neighboring North Korea, in efforts to deal with increases of the cost of production and drive up profit making.
The meeting, held in Yanji City of Jilin Province, was presided over by Division Chief Chen Guohua of the Production Department of China Tobacco Industry Co., Ltd.
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In an address delivered at the meeting, Deputy General Manager Jin Hongtian of Jilin Provincial Tobacco Co., Ltd. introduced the background of the project of investment in the establishment of a leaf tobacco cutting line at Pyongyang White Mountain Tobacco Co., Ltd. in North Korea.
For many years, Jilin Provincial Tobacco Co., Ltd. has adhered to the policy of executing the strategy of "going global". In doing so, it has respectively invested in the incorporation of Taedong River Tobacco Co., Ltd., Najin-Sonbong Bourgeoning Tobacco Co. and Pyongyang White Mountain Tobacco Co., Ltd. in North Korea, which mainly produce Changbai Mountain (Soft-White Mountain) brand, Changbai Mountain (Pyongyang) brand and Changbai Mountain (Pothong River) brand cigarettes in many specifications and at many price levels.
In 2011, the three enterprises produced and sold 7.05 billion cigarettes (141,000 cases), accounting for 40 percent of the cigarette market shares in North Korea in the year. As a result, the three enterprise have emerged as the largest cigarette production bases operated by the tobacco industry of China overseas.
Over recent years, the annual output and sales from the three operations in North Korea have kept going up rapidly while the cost of importing raw and support materials from China has kept increasing year-on-year. As a result, profit making by the three enterprises has declined continuously.
In efforts to deal with the unfavorable situation, and promote further extension of the industrial chain, Jilin Provincial Tobacco Co., Ltd. considered it imperative to execute the project of establishing a leaf tobacco cutting line at Pyongyang White Mountain Tobacco Co., Ltd. and enlarging its annual cigarette production capacity to 200,000 cases (10 billion cigarettes). As the project is intended to realize local processing and production of major raw materials, its economic efficiency is obvious. Meanwhile, execution of the project will contribute to promoting development of leaf tobacco growing and increasing jobs in North Korea. Therefore, it will not only make great contribution to realization of leaf-forward development of the tobacco industry of North Korea, but will also serve as a new example of establishment of new types of economic and trade cooperation between China and North Korea.
In the address, Jin Hongtian pointed out that in terms of the political environment, both the Chinese and North Korean governments have actively created favorable conditions for cooperation between enterprises from the two sides, and that in terms of the economic environment, Jilin Provincial Tobacco Co., Ltd., which is in a favorable situation of development, will do all it can to support the technological transformation of Pyongyang White Mountain Tobacco Co., Ltd.
The investment in the technological transformation of Pyongyang White Mountain Tobacco Co., Ltd. is estimated at 61.047 million yuan (9.7 million U.S. dollars). Jilin Provincial Tobacco Co., Ltd. is fully capable of raising funds for the investment by itself. Therefore, the funds needed for the execution of the project are all guaranteed.
In efforts to guarantee the supply of raw materials, Jilin Provincial Tobacco Co., Ltd. started in 2010 cooperation with the North Korean Ministry of Agriculture in establishing experimental projects for growing tobacco, with the Chinese side providing technological guidance. So far in 2012, the experimental projects have grown 300 hectares of tobacco, with each hectare expected to produce 2,000 kilograms of leaf tobacco. Therefore, the total leaf tobacco output from the experimental projects is expected to reach 600 tons in 2012. Jilin Provincial Tobacco Co., Ltd. is planning to continue enlarging its acreage of tobacco growing in North Korea, as leaf tobacco pricing is North Korea is obviously advantageous. In terms of the market environment, a 2008 national census put the North Korean population at roughly 24 million. Presently, the annual cigarette consumption in North Korea is about 400,000 cases (20 billion cigarettes). Along with gradual development of the north Korean economy, cigarette consumption in North Korea is expected to grow further. According to results of analogy analysis of neighboring regions, the annual cigarette marketing capacity in North Korea is expected to grow to 800,000 cases to 1 million cases (40 billion cigarettes to 50 billion cigarettes) in future. Therefore, the tobacco market of North Korea enjoys great room for future development, and cigarette sales growth for Jilin Provincial Tobacco Co., Ltd. appears to be guaranteed.
On the basis of analyzing the aforesaid favorable conditions, Jin Hongtian finally said that the project of establishing the leaf tobacco cutting line in North Korea will be obvious advantageous and will generate a remarkable efficiency.
Speaking on the same occasion, Deputy Director Shen Zhengxie of the Investment and Equipment Management Department of Jilin Provincial Tobacco Co., Ltd. said that introduced the basic situation of the project. The project is mainly designed to make a use of idle equipment, some newly purchased equipment and working capital of the Chinese side, and also make a use of existing workshop buildings as well as water, electric power and gas supply facilities of the North Korean side for joint-venture cigarette production. On the basis of the existing cigarette making, joining and packing capacity, the project will be meant to increase investment in establishing a leaf tobacco cutting, hanging and redrying line at Pyongyang White Mountain Tobacco Co., Ltd., to enable the enterprise to become capable of leaf tobacco redrying, leaf tobacco cutting, cigarette making, packing and filter tip processing, and to enable it to become an economic entity with an annual cigarette production capacity of 200,000 cases (10 billion cigarettes).
After discussion, the panel of experts designated to make demonstration of the project at the meeting drew the following conclusion to the project:
The project of investment in establishing the leaf tobacco cutting line at Pyongyang White Mountain Tobacco Co., Ltd. meets the strategy of "going global" in promoting business development set by the State Tobacco Monopoly Administration and also the requirement of the planning of Jilin Provincial Tobacco Co., Ltd. for promotion of business development in the 2011-2015 five-year period; that the project has won great support from the North Korean government; that the North Korean side has committed itself to providing the necessary workshops and guaranteeing energy supply for the execution of the project; that the funds for the execution of the project are all guaranteed; and that the execution of the project is feasible.
On the basis of the conclusion, the panel of experts unanimously agreed to have the project pass the demonstration. Enditem
