Chu Shijian—The Legendary Life of China’s Cigarette King

Overview

Chu Shijian (Chinese: 褚时健; 24 December 1927 – 5 March 2019) was a Chinese business executive and entrepreneur, known as the “king of tobacco” and the “king of oranges”. He turned the near-bankrupt Yuxi Cigarette Factory into one of China’s most profitable state-owned companies and developed its Hongtashan cigarette into one of the country’s most valuable brands. At its peak, the company contributed 60% of total revenues of the Yunnan provincial government.

Chu supplemented his low official salary by taking bribes. He was arrested for corruption in 1996 and sentenced to life imprisonment in 1999. After being released on medical parole in 2002, he started his second company at age 75, an orange plantation with the brand name “Chu Orange”. It became a nationally famous brand, giving Chu a new nickname as the “king of oranges”. His achievements and unyielding spirit made him “one of China’s most iconic entrepreneurs”.

Early Life

Chu was born on 24 December 1927 in Yuxi, Yunnan, Republic of China. He participated in the Chinese Communist Revolution in his youth, but was later denounced as a “rightist” during the Anti-Rightist Campaign, and was not politically rehabilitated until the end of the Cultural Revolution. He managed a sugar cane factory in his early career.

Career

Yuxi Tobacco

In October 1979, Chu was appointed head of Yuxi Cigarette Factory (later known as Yuxi Tobacco Company and Hongta Group). Yuxi was a near-bankrupt state-owned factory that made the Hongtashan (Red Pagoda Hill) brand of cigarettes, with an annual revenue of less than US$1 million.

Chu recognized that as China’s economy was starting to grow, more people could afford cigarettes, and he began to promote the Hongtashan brand all over the country. The brand became famous and demand grew quickly. Chu was able to sell the cigarettes for US$1.5 to $2 per pack, although the official price was fixed at $1. He spent the unreported profit on buying state-of-the-art equipment and building new offices and apartments for his employees.

By 1995, the company produced more than 100 billion cigarettes per year but still could not meet the demand even at the higher unofficial prices. Wholesalers were willing to pay bribes to Chu and his family members to secure supplies of Hongtashan. While Yuxi Tobacco generated more than 99 billion yuan in profits and taxes for the government during his 16-year tenure, Chu’s official monthly salary was less than US$250. He and his family members could not resist the temptation of augmenting their income by taking bribes. In February 1995, an informant sent evidence of the illegal payments to the government. Chu’s wife Ma Jingfen (马静芬) and their daughter Chu Yingqun (褚映群) were arrested, and Yingqun committed suicide in prison.

Chu was arrested in 1996. In 1999, he was convicted of embezzling US$1.74 million and diverting more than $145 million to company accounts from state coffers. He was sentenced to life imprisonment, although many considered it unjust and he remained a popular hero in Yuxi. His sentence was later reduced several times and officially ended in 2011.

Chu Orange

Chu developed diabetes while in prison and was released in 2002 on medical parole. Already 74, he decided to start his second company, an orange farm.

In June 2003, he leased 134 hectares (330 acres) of land in Xinping County and hired 300 employees. He employed the same management methods as at Yuxi Tobacco, such as the emphasis of quality over quantity and linking workers’ income to the company’s profits. As the company grew, his employees were able to earn several times the average local wage. He used the Internet to market his “Chu Oranges” nationally, and attracted wealthier customers who were willing to pay higher prices for a premium brand perceived as nutritious and safe. The company became highly successful, selling 10,000 tons of oranges a year by 2013. He also developed his orange plantation in the Ailao Mountains into an ecotourism resort. Chu, already known as the “tobacco king” of China, gained another title as the “king of oranges”.

On 17 January 2018, his 90th birthday, Chu appointed his son Chu Yibin (褚一斌) as chief executive officer of Chu’s Fruit Company Limited, while he retained the title of chairman.

Death

On 5 March 2019, Chu died from complications from diabetes at Yuxi People’s Hospital. He was 91.

Chu Shijian: A Legendary Life in China’s Tobacco Industry

Chu Shijian, the former chairman of Hongta Group (a key subsidiary of China Tobacco Yunnan Industrial Co., Ltd.) and Yuxi Hongta Tobacco (Group) Co., Ltd., passed away at the age of 91 on March 5, 2019. The news went viral on the Internet in China, with many people remembering the life of this legendary man, who began to cultivate oranges and became wildly successful in his 70s. However, this story will focus on the great course of his life during 1979 and 1994. During these 15 years, Mr. Chu created Hongtashan, a renowned Chinese cigarette brand, leading to Yuxi Cigarette Factory ranking first in Asia and joining the ranks of the world’s largest modern tobacco companies.

The Transformation of Yuxi Cigarette Factory

When Chu Shijian first became head of Yuxi Cigarette Factory, it was a tired, old Chinese state-owned factory in which factionalism was taken very seriously, the decision-making process was slow, and execution was very poor. In terms of the products, there were many brands, but all fell into the middle and lower grades, leading to product homogenization. In terms of production, it was a semi-mechanized workshop operation. In terms of mentality, factory workers were sluggish and lazy.

Faced with such a factory, one may imagine how Chu Shijian felt –“in fear”, of course. But, he worked out solutions and direction for his work, rather than being intimidated by this fear.

He initiated a series of reforms after he took over as manager of Yuxi Cigarette Factory, among which the most important was a technical improvement and raw material guarantee.

Introducing Advanced Technology Equipment

In the mid-1980s, China still implemented a planned economic system. Therefore, cigarette manufacturers had no power to apply for foreign equipment themselves but had to wait for the State Tobacco Monopoly Administration (STMA) to allocate purchasing indicators and then the local foreign exchange department would allocate foreign exchange for it. Then, the purchase indicator was assigned to China Tobacco Guizhou Industrial Co., Ltd. At that time, the Guizhou Cigarette Factory was a famous factory that produced well-known cigarette brands such as Yunwu Mountain and Huaxi. The State Administration of Foreign Exchange also agreed to grant foreign exchange indicators for Guizhou province. At that time, the equipment was priced at US$27 million (based on the exchange rate then, this was equal to about RMB70 million). However, the Guizhou Cigarette Factory decided to give this up.

The indicator was therefore transferred to Yunnan province. The tobacco department of the province first sought the opinions of Kunming Cigarette Factory, which was not interested in it. Chu Shijian, on the other hand, was very much interested in the opportunity. But, the executive of Yuxi Cigarette Factory had to first convince several deputy managers who felt that it was too risky.

To purchase the equipment, all the assets of the factory would need to be mortgaged. Yet, Chu Shijian had made up his mind. He worked out a purchase scheme with the deputy managers in the car on the way to Kunming and went on to persuade the provincial economic commission and the provincial planning commission. Thus, Yuxi Cigarette Factory became the only factory in China in the late 1980s set up with the world’s first-class cigarette equipment, which could automatically produce filtered cigarettes.

Chu Shijian had long attached great significance to technology. He started to renovate the production line after he took over the factory. He imported 85 sets of cigarette machines and two production lines from Britain, Japan, and the Netherlands, which were in line with the international criteria in the 1970s, albeit not the most advanced ones in the world. Thanks to the improvement of its technical capabilities, Yuxi Cigarette Factory quickly entered the ranks of China’s first-line cigarette factories.

Creating the Tobacco Fields, the First Workshops for Enterprise Production

In 1984, Chu Shijian invited Dr. Zuo Tianjue, who served as the tobacco expert at the US Department of Agriculture and returned to China more than 100 times to guide agricultural production, to improve Yuxi’s crop planting. Yuxi was home to gold leaf, and it began to produce a variety of tobacco leaves in the late Qing Dynasty. In 1914, British American Tobacco had already entered this city. In 1953, Yuxi tobacco leaves, known as “yellow chicken oil”, participated in the National Tobacco Conference held in Xuchang, Henan province, and gained a high score of 108. Since then, it became a representative variety of Yunyan.

However, when Chu Shijian took over the factory in 1981, Yuxi tobacco leaves could not compete with those in foreign markets. Despite the introduction of many different advanced equipment, the quality of cigarettes produced was still flawed—the tobacco leaves were not fragrant enough and the taste was not strong enough. So, the issues drove Chu Shijian to turn his attention to the tobacco fields.

In August 1984, Chu Shijian and Zuo Tianjue came to Tonghai county, Yuxi. Although the Tonghai tobacco fields were outstanding, Dr. Zuo immediately discovered the issues – improper use of fertilizer (only 40% of the quantity which was used in the US) resulting in insufficient nutrition of tobacco leaves; late planting of tobacco seedlings resulting in poor growth of tobacco leaves in such a short growing period; and too early picking leading to tobacco leaves that were not mature enough.

Chu Shijian thought that Zuo Tianjue found the key to high-quality Chinese tobacco leaves. He felt that there were two issues to be solved in order to change the quality of the crop production: First was lack of funds, because the transformation of tobacco fields relied on the transformation of the water source, and it also needed expensive fertilizers at the time. Secondly, the technology used was not up to standard.

To counter these two issues, Chu Shijian proposed a plan: Yuxi Cigarette Factory would provide funds and fertilizers and help farmers build reservoirs and water pipes to completely renovate the tobacco fields on one condition – that all tobacco leaves must be sold to Yuxi Cigarette Factory. This was the origin of the concept that “tobacco fields served as the first workshops for the production of manufacturers” that was later highly praised. This reform brought not only the improvement in the quality of tobacco leaves but more importantly, the entire Tonghai county first farmed out more than 1,700 mu (113.39 hectares) of tobacco fields as the base of Yuxi Cigarette Factory.

In 1985, the quality of the middle and upper-grade tobacco leaves produced in the test fields of Tonghai county accounted for more than 91%, which was consistent with international levels. Chu Shijian had achieved an important step towards success.

Shock & Inspiration

Chu Shijian proposed to build a workshop in the tobacco field, which seemed to be a very deviant idea then because according to the established deployment, the tobacco fields belonged to the tobacco company system, parallel with tobacco factories. In today’s Tonghai county, people no longer grow tobacco, and dense tobacco stations only appear in the villages near the mountains. In these tobacco-planting villages, there are a number of reservoirs, many of which are the products of Chu Shijian’s era, including sprinklers that extend into the tobacco fields, which are still in use. But in fact, these were not the things he was proud of. His great achievement was to put a lot of money into tobacco companies to help farmers buy fertilizers, or build water reservoirs, so that tobacco companies, farmers, and tobacco factories were firmly linked in the same chain.

At that time, the leadership of Tonghai county was in favor of Chu Shijian’s practices. But, when he further promoted it, he met with resolute opposition in the suburbs of Yuxi where he was located. The Tobacco Regulations promulgated in 1983 stipulated that tobacco factories were not allowed to intervene in the purchase and planting of the crop, as this was rather the responsibility of tobacco companies. The most popular phrase at the time was,” Chu Shijian put the bucket of the tobacco factory into the well of the tobacco company to bail water out.”

The county economy unquestionably benefited from the promotion of high-quality tobacco planting. At that time, the leaders of several counties under Yuxi were very supportive. Among them, Qianxi county received nearly RMB200 million in support funds from Yuxi Cigarette Factory for years. These counties grew to be economically strong.

Chu Shijian didn’t stop at this. He thought that the system at that time could not guarantee the maximum benefit of the tobacco factory because holding the tobacco company and the tobacco factory only meant holding the manufacturing channels, but the circulation channels were still in the hands of the tobacco monopoly administration, which was responsible for sales. The three were completely separated according to the system design. However, since he had merged the former two, he, of course, wanted to merge all the three, a three-in-one that could guarantee maximum benefit.

In 1987, China Tobacco Yunnan approved the plan. At that time Yuxi Cigarette Factory was already a significant local taxpayer with Chu Shijian at the head. The Hongtashan brand started to take off under this three-in-one system. Then, the Golden Doll brand was released. Soon, the national tobacco industry began to implement this management system. This move got rid of the past rigid link control, creating a great impact on the system under the planned economy.

However, Chu Shijian was imprisoned for economic problems in 1998, and the system was finally terminated. Since then, the manager of a tobacco factory can no longer serve as the general manager of a tobacco company.

Long-term Incentives

Many people believed that a person like Chu Shijian must have extraordinary ideas. In fact, he believed that many things could be implemented. He believed in being practical, serious, and forward-thinking.

The tobacco industry had long been the highest-paid industry in China. At that time, he proposed that workers should be paid more, with the hard-working ones earning higher wages. Many people thought that he was encouraging workers to ask for more money, but he did not believe this. He thought that “if a man makes more money through his own hard work, he would think that it was his own ability, not the factory’s favor.”

As he said later, “if a person was working to make a living, he would be very timid and afraid of making mistakes; he would not be able to fulfill his role, and his talents would not be fully utilized.” With such a goal in mind, Yuxi Cigarette Factory not only quickly adjusted to become a first-class national cigarette factory, but the overall quality of cigarettes produced was greatly improved.

The tobacco factory only had a few thousand people, but their income increased more than 10 times over the decade. Many employees of the Yuxi Cigarette Factory can’t forget the surprise of their first time receiving RMB5,000 as a monthly salary. The average income in other places was only RMB500.

Besides, there was another long-term incentive he proposed to cultivate the young. He believed that, “it’s difficult for middle-aged people to reform themselves as they are very used to their existing knowledge and experience. Young people must constantly challenge their limits and explore their potential. They must not be bound by rigid systems or rules.” Therefore, he promoted the principle of “giving the stage to the young”. The first deputy manager of Yuxi Cigarette Factory was only 26 years old when he was appointed, and many managers were all under 30 years old.

Many of these young people later became industry leaders, like Lin Jianguo who became the general manager of Kunming Cigarette Factory and led the second revolution of Yuxi Cigarette Factory. The young talents that Chu Shijian promoted are now leading the second generation of the tobacco industry.

Regrets and Apology

Many people believed that Chu Shijian was extremely resolute. When he proposed the innovation of establishing a tobacco field as a workshop, he encountered huge obstacles. Even the secretary of the party committee called him a traitor. He faced great pressure but kept on pursuing the reforms, thinking that “it is impossible for everyone to be wrong”.

However, this resolute man often regretted not being able to be with his daughter. Due to her ill health, she passed away in her early 20s. He once said, “I regret that I did not have time to care for my daughter. I hope others can avoid this regret.”

Post-Prison Life: Orange Farmer

After being released from prison, Chu Shijian started an orange farm and became highly successful once again. His oranges became a high-demand product, proving his business acumen was not limited to tobacco.

Conclusion

Chu Shijian’s life is a story of resilience, innovation, and success. He transformed Yuxi Cigarette Factory into a world-class enterprise, influenced China’s tobacco industry, and later found success in agriculture. His story serves as an inspiration and a reminder of the impact of determination and vision.