It seems a plan by British American Tobacco (BAT) to establish a
joint venture in China has been derailed at least for now.
In a statement issued last Friday, the world's second largest
cigarette maker said it would set up a US$1.5 billion joint venture
to produce and sell cigarettes here.
The country's tobacco industry watchdog, the State Tobacco
Monopoly Administration (STMA), promptly responded by saying it had
not approved any foreign companies to invest in or set up new
tobacco factories.
Reportedly, BAT has not given up hope on this gigantic
project.
Its eagerness to establish a foothold in China is certainly
understandable. Some 1.8 trillion cigarettes are sold in China
every year. There are 320 million smokers in this country, with 3
million more added each year. About 60 percent of all male citizens
above the age of 15 are smokers.
With the markets in Europe and North America shrinking, China
looms as a prime target in the eyes of top tobacco producers.
After China became a member of the World Trade Organization, the
nation lowered its average tariff rate on imported tobacco from 65
percent to 25 percent and it is gradually opening up tobacco
distribution.
Apparently these steps aren't enough for tobacco producers like
BAT.
The output of the planned joint venture is free of the tariff.
Targeting the Chinese market, it is described as "a major growth
opportunity" by BAT Chief Executive Paul Adams.
But the chances of it becoming reality any time soon appear
slim.
The STMA suspended issuing licenses for new tobacco factories in
1993 because the manufacturing capacity has far exceeded demand in
China.
The authorities have been trying to shut down or merge small
cigarette factories since then, cutting down the total number of
tobacco factories from more than 180 to 85.
It is unlikely a giant factory capable of producing 100 billion
cigarettes per year and targeting the domestic market will gain
approval after the efforts of the past decade.
Except for lowering tariffs and opening up distribution, China's
strict State monopoly on tobacco will be maintained, according to
its agreement on WTO entry.
Economic consideration aside, the fact that 1 million Chinese
die each year as a direct result of smoking is enough to make the
authorities think twice before they issue any new licenses to
tobacco producers.
(China Daily July 24, 2004)