China Tobacco



China National Tobacco Corporation, branded as China Tobacco (中国烟草), is a national key state-owned corporation with monopoly status in China to manufacture and sell tobacco products.

The State Tobacco Monopoly Administration is a Chinese government agency responsible for national tobacco monopoly regulation. The two agencies, being one institution with two names, are co-located in the same office and sharing the same website.

China Tobacco enjoys a legal monopoly in the country, accounting for 96% of cigarette sales in the country, and is the world's largest manufacturer of tobacco products measured by revenues. It exports a small proportion of its production, mostly to Asian markets.

History
In 1981, Chinese leader Deng Xiaoping established the China National Tobacco Corporation in order to modernize the previously chaotic tobacco market in China. In 1983, the State Tobacco Monopoly Administration was also established.

A major objective of China Tobacco and the STMA has been modernization. As recently as the 1980s, China's independent tobacco factories used outdated equipment to the extent that some processes were even carried out by hand. To accomplish their goal of modernization, the STMA allowed a small number of foreign companies into the country, in exchange for modern equipment. Though deals generally favored China, it allowed foreign companies to gain hard-to-come-by connections within China, and at high levels within the tobacco monopoly itself. The acceptance of foreign competition sparked a massive demand for tobacco production equipment in the 1990s, which has since slowed. However, major factories in China now count their production of cigarettes in tens of thousands per hour.

China Tobacco played a key role in watering down the effects of the WHO Framework Convention on Tobacco Control in China. It established an internal team to advance alternative to draft language viewed as harmful to its business, which also hosted visits by key government officials to tobacco factories, sponsor talks, produce research papers and publish a weekly magazine to promote its ideas. After the final text of the treaty was agreed on in May 2003, the staff from China Tobacco watered down the Chinese translation, replacing many English words with weaker Chinese terms.

At the same time, China Tobacco has consolidated its factory base; currently, there are 130 cigarette factories in China, compared with a 1997 number of 180. To further their goal of consolidation China Tobacco plans to reduce the number of factories below 100 in the near future. This has led to increased efficiency within the industry, allowing for greater production and brand variety than were possible before. In fact, many brands made by only one or two small regional factories have been licensed to large factories, becoming nationwide successes.

Organization and functions
The China National Tobacco Corporation and the State Tobacco Monopoly Administration are one institution with two names. STMA is an agency of the Ministry of Industry and Information Technology. The organization is responsible for enforcing the tobacco monopoly in China, and operates as the state-owned enterprise China Tobacco for marketing, production, distribution, and sales of tobacco products. Branch offices of the company are affiliated under provincial bureaus of tobacco monopoly.

, China Tobacco controls 96% of the cigarette market is responsible for 46% of cigarette sales worldwide. In the same year, the company generated around $213 billion (¥1.44 trillion) in revenue.

The organization of China Tobacco trickles down locally. China Tobacco contracts out orders to smaller, local factories. In turn these factories fill orders and deliver them for distribution to China Tobacco's distribution chain. The smaller local factories pay a sort of tax to China Tobacco, but keep much of their profit. In turn, retail distributors buy cigarettes from China Tobacco, and the profits realized from those sales is in turn taxed by the State Tobacco Monopoly Administration.

China Tobacco is among the state entities which contribute to the China Integrated Circuit Industry Investment Fund, which was established in an effort to decrease China's reliance on foreign semiconductor companies. The fund was established in 2014.

Regulation
Advertising in print, radio, and television has been banned in China, and outdoor ads require prior approval provided they are not in one of nearly 100 local jurisdictions where outdoor tobacco ads are banned. These restrictions have forced China National into a strategy that harkens back to the 60's and 70's in the United States; with "cigarette girls", attractive women dressed in brand logos, handing out samples, lighters, and promotional material in front of clubs and bars. Another form of circumvention is printing outdoor advertisements in the name of another entity, the latter's name being clearly printed on the material. For example, the Hongtashan brand mentioned above has recently published their new climbing-themed advertisements through a Hongtashan Climbing Club.

Brands
China Tobacco, like many other tobacco companies, produces a plethora of brands – over 900, the largest of which, Hongtashan (Red Pagoda Hill), accounts for only 4% of total sales. China tobacco also markets premium brands, notably Chunghwa. Despite the existence of such premium brands premium cigarettes are uncommon in rural areas.

Trends in cigarette buying have not been lost of China either. In recent years several varieties of cigarettes targeted at women have been released (breaking a longstanding taboo). Varieties common internationally are just as common in China: Unfiltered, Filters, Lights, Ultra Lights, 100's, and 120's are all available in a variety of brands.

Foreign brands are to this day not unknown in China, since their introduction with the advent on China Tobacco and the STMA. Marlboro, Dji Sam Soe 234, Camel, Kool, Lucky Strike, 555, and a variety of other brands can all be found throughout major cities in China. However, while these cigarette brands are marketed as premium brands outside of China, within China these cigarettes are made locally under license or joint venture. Foreign sales make up only 3 percent of the Chinese market, yet accounts for 51 billion cigarettes every year.