China National Tobacco Corporation

China National Tobacco Corporation (中国烟草总公司), 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 (国家烟草专卖局) is a Chinese government agency responsible for national tobacco monopoly regulation. The two agencies operate as one institution with two names, 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 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 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 As recently as the 1980s, China’s independent tobacco factories used outdated equipment to the extent that some processes were even carried out by hand.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 achieve 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 the country 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 promote alternative draft language viewed as harmful to its business, hosted visits by key government officials to tobacco factories, sponsored talks, produced research papers, and published a weekly magazine to promote its ideas. After the final text of the treaty was agreed on in May 2003, 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 to 180 in 1997. 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. 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. The 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 with provincial bureaus of tobacco monopoly.

As of 2022, China Tobacco controls 96% of the cigarette market and 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 orders to smaller, local factories, which 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. Retail distributors buy cigarettes from China Tobacco, and the profits realized from those sales are taxed by the State Tobacco Monopoly Administration.

China Tobacco is among the state entities that contribute to the China Integrated Circuit Industry Investment Fund, established to decrease China’s reliance on foreign semiconductor companies.

Regulation

Advertising in print, radio, and television has been banned in China, and outdoor ads require prior approval unless they are in one of nearly 100 local jurisdictions where outdoor tobacco ads are banned. These restrictions have forced China National into a strategy reminiscent of the 60s and 70s in the United States, employing “cigarette girls”—attractive women dressed in brand logos who hand out samples, lighters, and promotional material in front of clubs and bars. Another circumvention method involves printing outdoor advertisements in the name of another entity, clearly displaying that entity’s name on the material. For example, the Hongtashan brand has recently published climbing-themed advertisements through the Hongtashan Climbing Club.

Brands

China Tobacco 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 also evolved in China. In recent years, several varieties of cigarettes targeted at women have been released, breaking a longstanding taboo. Varieties common internationally, such as unfiltered, filters, lights, ultra lights, 100’s, and 120’s, are all available in various brands.

Foreign brands are still present in China, as their introduction coincided with the advent of China Tobacco and the STMA. Brands such as Marlboro, Camel, Kool, Lucky Strike, and 555 can be found throughout major cities in China. However, while these brands are marketed as premium outside China, within the country, they are produced locally under license or joint ventures. Foreign sales account for only 3 percent of the Chinese market, yet this represents approximately 51 billion cigarettes every year.

Key Functions

• Production: CNTC oversees the manufacturing of a wide range of tobacco products, including cigarettes and other tobacco-related items.
• Distribution: The corporation manages the distribution channels for tobacco products throughout China, ensuring accessibility and compliance with regulatory standards.
• Regulation: CNTC is involved in formulating and implementing policies related to tobacco control and industry regulations in China.

Here’s an overview of the CNTC:

1. Ownership and Structure: The CNTC is a state-owned enterprise directly supervised by the State Tobacco Monopoly Administration (STMA), which oversees China’s tobacco industry. It operates as a monopoly, controlling all aspects of tobacco production, distribution, and sales in China.
2. Scope of Operations: The CNTC is involved in various aspects of the tobacco industry, including cultivation, processing, manufacturing, and distribution of tobacco products such as cigarettes, cigars, and other tobacco-related products. It owns numerous subsidiary companies and brands across China.
3. Market Dominance: With a vast domestic market and a significant presence in international markets, the CNTC holds a dominant position in the global tobacco industry. It produces a wide range of cigarette brands catering to diverse consumer preferences.
4. Regulatory Environment: As a state-owned enterprise, the CNTC operates within the regulatory framework established by the Chinese government. It adheres to strict regulations concerning product safety, labeling, advertising, and public health measures related to tobacco control.
5. Social and Economic Impact: The tobacco industry, including the CNTC, contributes significantly to China’s economy through tax revenues, employment generation, and infrastructure development in tobacco-growing regions. However, it also faces scrutiny due to concerns about the health and social impacts of smoking.
6. International Expansion: In recent years, the CNTC has expanded its presence in international markets through strategic partnerships, joint ventures, and acquisitions. It exports tobacco products to various countries and collaborates with foreign companies to enhance its global competitiveness.
7. Research and Innovation: The CNTC invests in research and development to improve product quality, develop new tobacco varieties, and explore alternative products such as electronic cigarettes and reduced-risk tobacco products. It also focuses on sustainable farming practices and environmental stewardship.

Structure

• Subsidiaries: CNTC operates several subsidiaries across various provinces in China, including Yunnan Tobacco Corporation, which focuses on tobacco production in Yunnan Province.
• Research and Development: The corporation invests in research and development to improve tobacco cultivation, processing methods, and product innovation.

Market Position

• Global Influence: CNTC is recognized as one of the largest tobacco companies worldwide, with a significant market share both domestically and internationally.
• Brand Portfolio: The corporation manages a diverse portfolio of cigarette brands, catering to different consumer preferences.

Social Responsibility

• Community Engagement: CNTC engages in social responsibility initiatives, including support for agricultural development and community programs in tobacco-growing regions.
• Sustainability Efforts: The corporation is also exploring sustainable practices in tobacco production to minimize environmental impact.

Overall, the China National Tobacco Corporation plays a significant role in China’s tobacco industry and has a considerable influence on global tobacco markets. However, it operates within a complex regulatory landscape and faces ongoing challenges related to public health concerns and changing consumer preferences.