China suspends new tobacco JV
(Xinhua)
Updated: 2004-11-24 10:17

China says new joint ventures with foreign manufacturers will not be approved "in the near-term," though foreign tobacco giants are keen for a share in the world's biggest cigarette market. However, industry analysts say that with the opening of the Chinese market, domestic tobacco companies should speed up their restructuring to improve competitiveness against international rivals, China Radio International reported Wednesday.

Some 350 million people in China, about 36 percent of the population, are smokers.

Facing increasingly strong and effective anti-tobacco measures in developed countries, tobacco giants such as British American Tobacco and Philip Morris are all eager for a slice of the Chinese market.

However, British American Tobacco's ambitious plan to build a plant in China manufacturing up to 100 billion cigarettes a year has recently been denied by China's State Tobacco Monopoly Administration.

Guo Chenglai, a tobacco industry analyst, says foreign tobacco giants' entry into the Chinese market is being treated with great caution by China's tobacco authority since the tobacco industry is one of the country's largest tax payers.

"The sale of cigarettes remains an immensely reliable and important part of China's tax base, contributing 10 per cent of national revenues, as well as funds for many local governments."

However, with China's entry into the World Trade Organization, its tobacco market is becoming more open, with growing competition from big foreign counterparts.

Under the circumstances, Guo Chenglai says Chinese tobacco companies should speed up restructuring in a bid to create big, widely recognized cigarette brands and improve their competitiveness and efficiency.

"In a move to build better and stronger brands, more than 200 of China's 300 cigarette brands will be stubbed out. In addition, national administrators plan to establish 30 to 50 key enterprises through mergers and acquisitions over the next three years, closing smaller producers by the end of this year."

The analyst adds that the investment moratorium doesn't mean that foreign involvement in the industry is completely stopped.

On the contrary, to improve its competitiveness and efficiency, Chinese tobacco makers should cooperate with foreigners on research and the importation of high-grade tobacco leaf, tobacco paper and new technology.

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