China National Tobacco Corporation

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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 6

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

Personnel

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 2018.9

Xu Ying: State Tobacco Monopoly Administration, deputy director.9 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.9He has been working in the domestic tobacco industry since 1991.

Zhang Tianfeng: State Tobacco Monopoly Administration, deputy director.9 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.9 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.

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:

wdt_ID Company Most popular brands
1 Hongta Tobacco Group
It also has subsidiaries abroad in Switzerland and Latin America
Hongtashan
Hongmei
Yuxi
2 Hongyun Honghe Group Honghe
Yunyan
Lesser Panda
3 China Tobacco Hunan Industrial Company BaiSha
Furongwang
Furong
4 China Tobacco Hubei Industrial Company Red Golden Dragon
Yellow Crane Tower
5 China Tobacco Henan Industrial Company Hongqiqu
6 Shanghai Tobacco Group Double Happiness
Chunghwa
Zhongnanhai

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:41011

wdt_ID Subsidiary Company Description
1 China Tobacco International (HK) Company Limited  (中烟国际香港有限公司) A company incorporated in Hong Kong with limited liability. Previously known as China Tobacco Import Export Group (CNTIEC).
2 China Brasil Tabacos Exportadora S.A. (CBT) A company incorporated in Brazil on 15 September 2011, which is held as to 51% by China Tabaco International Do Brasil Ltda.
3 China Tobacco International Inc (中国烟草国际有限公司) (CTI) A company incorporated with limited liability in China in 1984, and a wholly owned subsidiary of CNTC.
4 China Tobacco International Group Limited (中烟国际集团有限公司), CTIG Formerly known as Tian Li International Company Limited, and is now a wholly owned subsidiary of the CNTC.
5 CTPMI DRC An office of the joint venture between CNTC and PMI in the Democratic Republic of Congo to launch heritage brands.
6 China Tobacco International North America (CTINA) A leaf-procurement subsidiary based in Raleigh, North Carolina.
7 China Tobacco International Europe Company (CTIEC) Based in Romania, the CTIEC targets European market, mostly in duty-free shops at airports.
8

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.612

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.13 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.14. 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.15

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.16

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.17 Imperials’ e-cigarette subsidiary Fontem Ventures has a separate company based in Bejing.

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 2017.18

“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.”19

Marketing

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.62021

Online marketing of tobacco presents a particular challenge to tobacco control in China.2223

  • For more information on tobacco marketing strategy in general see the page on Advertising Strategy

Corporate Social Responsibility

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.

Those 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”.24

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.”25 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.

Next Generation Products

As part of the STMA’s strategic planning, it has engaged in the research and development of Next Generation 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 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.2627 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.2829

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.”30

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.”31

External Links

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

Organised Crime and Corruption Reporting Project: China Tobacco Goes Global

Tobacco Tactics resources

STOP report on China

Western Pacific Region

References

  1. abcT.Hancock, China Tobacco looks to take on global cigarette makers, Financial Times, 3 April 2019, accessed June 2021
  2. K. Lee, How China became a cigarette superpower, The Lancet, 1 June 2019, accessed June 2021
  3. M.Kohrman, G. Quan, L. Wennan and R.N. Proctor, Poisonous Pandas: Chinese Cigarette Manufacturing in Critical Historical Perspectives, Stanford University Press, 2018
  4. abJ. Fang, K. Lee, N. Sejpal, The China National Tobacco Corporation: From domestic to global dragon?, Global Public Health, Vol 12, 2017, pp315-334
  5. abcdeP. He, T. Takeuchi, E. Yano, An overview of the China National Tobacco Corporation and State Tobacco Monopoly Administration, Environmental Health and Preventative Medicine, 2013 Jan; 18(1): 85–90. doi: 10.1007/s12199-012-0288-4
  6. abcdefghijCampaign for Tobacco-Free Kids, The Chinese Tobacco Market and Industry Profile, CTFK website, January 2012
  7. A.Liao, China’s STMA and the Tobacco Monopoly, Tobacco Asia, 1 July 2015, accessed June 2021
  8. Expose Tobacco, China report, undated, accessed June 2021
  9. abcdeChina National Tobacco Company, Leadership Information, CNTC website, undated, accessed June 2021
  10. China Tobacco International (HK) Company Limited, Annual Report 2020, April 2020, Accessed August 2021.
  11. China Tobacco International North America, Homepage, undated, accessed August 2021
  12. Campaign for Tobacco-Free Kids, China National Tobacco Corporation and Philip Morris International’s Partnership, CTFK web site, April 2010, accessed June 2021
  13. K. Lee and J. Collin, “Key to the Future”: British American Tobacco and Cigarette Smuggling in China, PLoS Med 3(7): e228. https://doi.org/10.1371/journal.pmed.0030228, 18 July 2006
  14. C. Holden, K. Lee, A. Gilmore, G. Fooks, and N. Wander, Trade Policy, Health, And Corporate Influence: British American Tobacco and China’s Accession to the World Trade Organisation, International Journal of Health Services, Volume 40, Number 3, pp 421–441, 2010, DOI: 10.2190/HS.40.3.c
  15. CTBAT International Co Ltd, About Us, CTBAT website, undated, accessed June 2021
  16. R. MacKenzie, J. Eckhardt and P. Widyati, Japan Tobacco International: To ‘be the most successful and respected tobacco company in the world’, Global Public Health, 1 Mar 2017, 12(3):281-299
  17. Imperial Brands, Driving growth in China, Imperial Brands website, 11 January 2017, accessed June 2021
  18. J. Fang, China: Tobacco and Belt and Road Initiative – the new ‘Go Global’?, Tobacco Control, 1 August 2019
  19. R. MacKenzie, J. Fang, J. Smith, China: CTI’s quiet expansion strategy should be a concern for global public health, Tobacco Control, 12 October 2019
  20. G. Yang, Marketing ‘less harmful, low-tar’ cigarettes is a key strategy of the industry to counter tobacco control in China, Tobacco Control, 2014;23:167-172
  21. Q. Gan, W. Lu, J. Xu, M. Goniewicz, N. Benowitz, S. Glantz, Chinese ‘low-tar’ cigarettes do not deliver lower levels of nicotine and carcinogens, Tobacco Control, 2010;19:374-379
  22. X. Wang, Y. Xiong, W. Zhao, Tobacco control challenges in China: Big data analysis of online tobacco marketing information, International Journal of Nursing Sciences, Volume 7, Supplement 1, 10 September 2020, Pages S52-S60
  23. F. Wang, P. Zheng, B. Freeman, S. Chapman, Chinese tobacco companies’ social media marketing strategies, Tobacco Control, 2015;24:408-409
  24. China National Tobacco Company, Poverty Alleviation, undated, accessed June 2021
  25. J. Fang, China’s tobacco industry is building school and no one is watching, The Conversation, 11 August 2019, accessed June 2021
  26. New HNB from China Tobacco, Tobacco Asia, 30 May 2019, accessed June 2021
  27. MOK HNB device review – The leader of heat not burn products, vape.hk, website, 12 November 2019, accessed June 2021
  28. R. MacKenzie, J. Fang, J. Smith, China’s e-cigarette manufacturers facing uncertain future, Tobacco Control, 19 May 2020
  29. Global News Wire, China National Tobacco Corporation Overview 2017-2020, press release, 20 April 2021, accessed June 2021
  30. G. Quan, S.A. Glantz, Relationship between the Chinese tobacco industry and academic institutions in China, Tobacco Control, 2011 Jan; 20(1): 12–19. doi: 10.1136/tc.2010.036079
  31. China National Tobacco Company, Leader’s Speech, 6 February 2020, accessed June 2021
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