China National Tobacco Corporation

The China National Tobacco Corporation (CNTC) is the world’s largest producer of cigarettes and primarily serves the huge Chinese domestic market. A state-owned entity, it is increasingly looking to develop overseas markets.

Background

The CNTC was founded in 1982 and brought together disparate regional producers under one umbrella organisation to enable central-planned cigarette manufacturing. It has the state-owned monopoly on tobacco growing, production and sales with an estimated 97% market share.¹

The CNTC generates between 9% and 12% of total state revenue making it a “government-business leviathan”. However which relatively little is known about the company.²³

That volume of income is down due to it having the single largest domestic market in the world, an estimated 270 million smokers. It produces 2.5 trillion sticks – comfortably making it the largest single producer in the world.⁴

The CNTC is not one organisation but manages hundreds of tobacco companies, manufacturers, suppliers, and growers of varying size. ⁵ This vertical spread of entities are engaged in everything from tobacco leaf production to selling the brands. Despite this their numbers are down significantly from when the CNTC was originally formed as it has looked to consolidate operations to benefit from economies of scale.⁶

• See below for a list of Tobacco Companies and of global subsidiaries of the CNTC.

State Tobacco Monopoly Administration

While the CNTC makes the products, the State Tobacco Monopoly Administration (STMA) is responsible for managing the state monopoly on tobacco. It answers to the Ministry of Industry and Information. Although they have different names, they are essentially the same organisation with the STMA setting the strategic decisions and CNTC responsible for carrying them out. In addition, as the state entity, the STMA has responsibility for tobacco control measures. China ratified the Framework Convention on Tobacco Control in 2005 and in 2015 banned cigarette advertising, although it is still permitted online. There is a fundamental contradiction here:  the government’s vehicle for manufacturing and selling cigarettes is also, under another name, responsible for tobacco control policies.⁵⁷ This contradiction with FCTC Article 5.3 has been seen at the international level. As the STOP report on industry interference in China points out:

“In 2014, representatives from STMA and the China National Tobacco Corporation (CNTC) joined the Sixth Session of the Conference of the Parties to the WHO Framework Convention on Tobacco Control (FCTC) in Moscow, Russia. At COP8 tobacco representatives participated in the naming of the group members in China’s delegation.”⁸

CNTC Tobacco Companies

The CNTC controls a number of Chinese tobacco companies which produce their own brands popular with particular markets. Among the biggest are:

Based on data from Campaign for Tobacco-Free Kids.⁶ These companies also invest in other internal markets such as real estate, transportation, hotels and finance.

CNTC Global Subsidiaries

The CNTC also has a number of other companies based both within and outside of China. Amongst these:⁴⁹¹⁰

Relationships with Transnational Tobacco Companies

Although CNTC has the domestic monopoly, outside tobacco companies are allowed to operate, in exchange for the technology they can provide and licensing fees for selling popular brands. That ‘open door’ policy began in the 1970s and most recently has seen CNTC look to operate beyond its own national borders.

Philip Morris International

Philip Morris International (PMI) has the biggest presence in the limited market available to overseas tobacco companies in China. It signed an agreement with the CNTC in 1994 to allow the manufacture and sale of the Marlboro brand.⁵ That same year PMI began sponsoring the China national football league. In 2008 PMI agreed a joint venture with China National Tobacco Important Export Group Corp. to put Chinese national brands into markets in Europe and Latin America.⁶¹¹

• For more information on PMI’s China sports sponsorship see the page on Football Sponsorship

British America Tobacco

British American Tobacco (BAT) has a long association with the country. During the first half of the twentieth century, it dominated the industry but was forced to leave in the 1950s and only returned in the 1980s. That return was marked by what one key study described as “strategically critical” involvement in smuggling cigarettes into China.¹² BAT was closely involved in efforts to get China to become a member of the World Trade Organisation which would have assisted BAT as it would have liberalised the Chinese tobacco market.¹³. See also the Tobacco Tactics page on Chatham House.

BAT has engaged in some joint-ventures and assisted with tobacco growing investment.⁵ These have not always proved successful.⁶ However the joint venture with CNTC to sell the popular BAT brand State Express 555 in China and the Shuangxi brand overseas has been in operation since 2013. The vehicle for that is CTBAT International Company based in Hong Kong.¹⁴

Japan Tobacco International

Japan Tobacco International (JTI) and CNTC work together to make and sell a few popular JTI brands.⁵ Some of those relationships are based on those JTI inherited through acquisitions of RJ Reynolds (1999) and Gallaher (2007).⁶ JTI established a China Division in 2003 to enable its work with the CNTC in the country.¹⁵

Imperial Brands

Imperial Brands is the company with the newest and weakest of links with the CNTC. It signed a deal in 2003 for CNTC subsidiary Hongta to produce its West brand and in return Imperial distributes the Hongtashan brand abroad.⁶ In 2017, CNTC’s Yunnan Tobacco and Imperial set up a joint company, Global Horizon Ventures Limited, to sell the West cigarette and Davidoff cigar brands in China and Jade and Horizon brands abroad.¹⁶ Imperials’ e-cigarette subsidiary Fontem Ventures has a separate company based in Bejing.

Product Portfolio

See product terminology for definitions used on TobaccoTactics.

The vast majority of CNTC’s revenue comes from the sale of cigarettes and other conventional tobacco products.

Conventional tobacco products

Through their global network of subsidiaries, CNTC is behind a multitude of cigarette brands. Some of their subsidiaries and brands are:⁶¹⁷

See also the Tobacco Supply Chain database for country specific information.

Newer nicotine and tobacco products

As the harms from smoking conventional products have become better understood, and tobacco control measures have been put in place, the cigarette market – from which tobacco companies make most of their profits – has started to shrink.  To secure the industry’s longer-term future, TTCs, as well as the CNTC, have invested in, developed and marketed newer nicotine and tobacco products.¹⁸

As part of the STMA’s strategic planning, it has engaged in the research and development of these products. Its Tobacco Research Institute has been working in this area since the 1980s – initially on flavours and lower-tar cigarettes but more recently on e-cigarettes (also known as electronic nicotine delivery systems, or ENDS) and heated tobacco products (HTPs).⁶. CNTC has focused on HTPs and produces several brands including Kuanzhai Kungfu, MC and MOK. These are sold in both domestic and foreign markets, specifically South Korea and Japan.¹⁹²⁰ The booming e-cigarette industry operates separately from the company with thousands of manufacturers and an estimated two million employees serving a global market and with limited regulations.²¹²²

The CNTC has also long-maintained extensive relations with domestic academic research institutions. One analysis of journal articles published concluded that: “The Chinese tobacco industry relies heavily upon academic researchers to advance its research agenda and such reliance has grown over time. Most research deals with farming, manufacturing and management issues, but research on ‘reduced harm’ and health effects has increased.”²³

Product Regulation

For detailed, up to date information at country level, see the searchable database on the Tobacco Control Laws website, published by the Campaign for Tobacco Free Kids (CTFK).

For countries that are parties to the WHO Framework Convention on Tobacco Control (FCTC) progress towards implementation of relevant articles, including newer products, is detailed in the FCTC implementation database.²⁴

Market Strategy: Moving Out of the Domestic Market

While China’s domestic market remains large, in recent years tobacco control policies have caused a decline in the number of home customers. The CNTC has looked to operate at an international level as a way to maintain revenue. As a state-owned enterprise, a more aggressive overseas profile also supports the Chinese government’s global Belt and Road Initiative (BRI). This ambitious programme sees Chinese-funded infrastructure projects in more than 125 countries. The development of a CNTC presence in BRI countries was set out as strategic objective in 2017.²⁵

“China Tobacco’s overall goal [is] to eventually become a transnational tobacco company with its own leading brands, in order to compete with the likes of Philip Morris International and British American Tobacco,” says Jennifer Fang, from the Global Tobacco Control Research Programme at Simon Fraser University, who studies the company.¹

As such, exports rose from US$248m in 2009, which was around 1% of total production, to US$722m in 2019, with the majority going to the Asian market.¹

As part of this move China Tobacco International Hong Kong launched onto the stock market in July 2019. An analysis in Tobacco Control wrote: “As the goal of the IPO was to finance market expansion in CNTC target markets, and establish strategic collaborations with other cigarette companies, its significance for tobacco control and public health should not be underestimated.”²⁶

Tactics to Undermine Tobacco Control

Tobacco industry interference is widely understood to be the greatest barrier to progress in reducing the deadly health impact of tobacco.²⁷ Article 5.3 of the World Health Organization Framework Convention on Tobacco Control (FCTC), obliges countries to protect their health policies from the “vested interests of the tobacco industry”.

TCRG has identified a range of tactics used by tobacco companies to interfere with and undermine tobacco control, in order to further their commercial goals.

Tactics used by the CNTC include:

Controversial marketing strategies

Despite the monopoly status, the CNTC uses the same marketing techniques as its transnational competitors. It produces “light” and “low tar” versions, brands aimed at women and young people, and puts iconic images on its packs.⁶²⁸²⁹

Online marketing of tobacco presents a particular challenge to tobacco control in China.³⁰³¹

Corporate Social Responsibility (CSR) initiatives

As with marketing, so the CNTC engages in corporate social responsibility (CSR) activities familiar to transnational tobacco firms. This is despite the fact that a parallel part of the CNTC, the STMA, is responsible for tobacco control policies.

CSR activities include grants to tackle poverty, environmental initiatives, supporting scholarships and donations to disaster relief.⁶ Indeed on the CNTC web site there is a specific section called “Poverty Alleviation”.³²

Jennifer Fang wrote: “As a state-owned enterprise, CNTC is expected to closely follow the government’s policy leads, and to support particular priorities, such as reducing poverty.”³³ That includes the tobacco company setting up more than 100 schools named after cigarette companies or brands. Fang also identified a school built in Zimbabwe in 2010 by a CNTC subsidiary while a Cambodian subsidiary donated school supplies in that country.

Despite being the largest single producer of cigarettes globally there is little information on the environmental impact of the CNTC.

Alleged involvement in illicit trade

Xu Ying, one of the State Tobacco Monopoly Administration deputy directors, gave an interview in 2020 in which he revealed that seizures of counterfeit and smuggled cigarettes had risen year on year and further action was required. He said:

“Although the nationwide anti-counterfeiting and smuggling work has achieved significant results, the current situation is still grim. Driven by huge profits, the manufacture and sale of counterfeit cigarettes and smuggling activities will inevitably exist for a long time. The current situation of anti-counterfeiting and smuggling of tobacco across the country has emerged. The main manifestation is the transfer of cigarette counterfeiting activities abroad, and the counterfeit domestic brand cigarettes produced abroad are smuggled into the country and then distributed nationwide. The momentum is rampant and intensified.”³⁴

Illicit CNTC products seized in European countries have been found to have originated through Ukraine. ^{35 36}

CTIEC cigarettes were sold to an Iraqi company, Devmak, before being allegedly smuggled into Italy. The smugglers were found to have links to organized crime and are also suspected of being active in Moldova and Montenegro.^{37 36}

Smuggling networks have also been uncovered in Latin America, with several China Tobacco-connected, Panama-based companies coordinating shipments of illicit products to several countries in the region. ³⁸³⁶

Key employees and board members

Zhang Jianmin: General Manager of the China National Tobacco Corporation, Director of the State Tobacco Monopoly Administration, member of the party leadership group of the Ministry of Industry and Information Technology. Zhang has a background in engineering before going on to gain a doctorate in economics. He served in a number of regional party posts before joining the ministry responsible for the STMA in 2018.³⁹

Xu Ying: State Tobacco Monopoly Administration, deputy director.³⁹ Has worked in the tobacco industry since 1992 and appears to have responsibility for countering smuggling and counterfeiting.

Duan Tieli: State Tobacco Monopoly Administration, deputy director.³⁹He has been working in the domestic tobacco industry since 1991.

Zhang Tianfeng: State Tobacco Monopoly Administration, deputy director.³⁹ He has been working in the tobacco industry since 1998 and has a masters in business administration

Han Zhanwu: State Tobacco Monopoly Administration, deputy director.³⁹ Has held a number of personnel roles in different state organisations since 2000 before joining the Ministry of Industry and Information Technology in 2016 and the STMA in 2020.

Relevant Links

China National Tobacco Corporation http://www.tobacco.gov.cn/

Organised Crime and Corruption Reporting Project: China Tobacco Goes Global

STOP report on China

STOP brief on the CNTC

TobaccoTactics Resources

Western Pacific Region