China Battles a Dragon: 300 Million-Plus Puffers

ANTISMOKING Davids are taking on an uphill fight against China's most profitable Goliath, the lucrative tobacco industry.

With more than 300 million Chinese smokers, larger than the population of the United States, smoking is socially ingrained in the Chinese way of life, critics say.

And with the economic reforms fueling a change in the standard of living, cigarettes have become increasingly attractive as a status symbol.

For more than a decade Yunnan Province, producer of almost one-fifth of the 1.7 trillion cigarettes in China last year, has ridden a wave of tobacco prosperity.

Tobacco is a key cash crop for Yunnan's peasants and generates almost all provincial tax revenues. In China, profitable cigarette factories are the only bright lights among loss-ridden state enterprises. (China's war on opium, Page 7.)

Yet that economically rosy picture is expected to blur as smoking increasingly comes under fire from a central government concerned about health risks and costs. Smoking-related problems cost China far more than the government makes in cigarette-tax revenues, critics say.

Effects of antismoking crusade

At the Chuxiong Tobacco Factory in this small central Yunnan town, managers say they anticipate that the antismoking crusade will begin to affect cigarette sales down the road.

China's cigarette industry also faces an aggressive onslaught from foreign-brand cigarettes introduced by multinationals and targeted to upscale urbanites drawn to anything foreign.

"As living standards improve, more and more people will stop smoking. But we don't think it will have such an impact for another 10 years," predicts Na Zonghui, who heads the factory.

The State Tobacco Monopoly Administration is the single biggest earner for central-government tax coffers and in 1994 contributed $6.6 billion in profits and taxes, up one-third from 1993. Almost half of the most profitable state enterprises are cigarette producers, according to Chinese press reports.

With smoking on the increase, particularly among teenagers and women, the government overlooks the health threat and costs of smoking, because "it badly needs the tax revenues generated by the tobacco industry," says Zhang Yifang of the China Association on Smoking and Health in Beijing.

Still, antismoking campaigns are gaining momentum as laws banning smoking in public places are in the works in the cities of Beijing, Shanghai, and Wuhan.

In anticipation of the World Health Organization's conference on smoking to be held in Beijing in 1997, Beijing city officials have drafted a law to ban smoking in offices, meeting halls, classrooms, cinemas, theaters, dance halls, and karaoke bars, except in certain designated rooms.

Campaign gathers steam

Smoking is already not allowed on public buses and in subways, while on trains and airplanes, smokers are confined to certain areas.

The draft law, which is scheduled to take effect Oct. 17, would also establish a municipal Public Health Campaign Commission to oversee implementation of the law. May 31 was observed as Non-Smoking Day in Beijing.

Under pressure from international antismoking organizations, the city of Shanghai also said recently it would start enforcing an old law that bans smoking in public places. The Chinese press estimates that only about 30 percent of public places in the city now ban smoking.

China's first advertising law banning tobacco advertisements in newspapers and magazines, and on television and radio, was also enacted this year. But multinational tobacco firms sidestep the restriction by promoting their name brands by sponsoring sports events and lines of fashion clothing - much like in the West.

Some industry observers say the antismoking moves are merely designed to buy time for the domestic tobacco industry, which is in the midst of reorganizing and is trying to bolster its exports to poorer countries, such as Vietnam and Burma, now known as Myanmar.

Multinationals want larger share

With Westerners quitting the smoking habit at the rate of 2 to 3 percent a year, large international tobacco companies are eyeing the burgeoning Chinese market.

Some of the largest US cigarette companies have signed agreements to produce cigarettes in China through joint-venture operations. Currently, foreign companies hold only about 2 percent of the market.

As more Chinese smokers turn to international brands with better-quality tobacco, which has fueled smuggling and counterfeiting of foreign cigarettes, China's domestic tobacco industry is threatened. Anxious to prevent lost tax revenues and damage to domestic producers, authorities have tried to crack down on the illegal trade.

In the meantime, Chinese cigarette factories, such as the Chuxiong operation, are trying to become more competitive against the foreign challenge and gear their products to the upscale market. The area is heavily reliant on the tobacco industry, with three-quarters of county revenues coming from cigarette production and 4,000 people working in the tobacco industry.

Officials estimate that 80 percent of the 1 million peasants in Chuxiong county produce tobacco. "There is no industry that can get money so directly to the peasants as the tobacco industry," says Liu Dapin, a local government official.

Emphasis on diversifying

Still, officials here say the area is preparing for a future in which tobacco is likely to play a diminished role.

Forestry, orchards, and animal breeding are expected to increase in the area. The Chuxiong Tobacco factory, the third-largest cigarette factory in Yunnan and the seventh-largest in China, is also making plans to diversify into printing, hotels, and fertilizer and plastic packaging material production. It plans to significantly lower cigarette revenues from the current 70 percent of the total.

New imported equipment from Germany and Britain has enabled the company to produce better-quality cigarettes, which are being sold at higher prices and are boosting profits to about $2 million annually.

The factory could also produce almost 20 percent more than its current capacity and earn sharply higher profits, but is restricted by state production quotas.

Philosophically, that's not a bad thing, says assistant factory manager Shi Wenlin. "To tell the truth, I think more cigarettes will do more harm to more people. And if I produce more and there's no market, that's a waste too," says Mr. Shi, who says he gave up smoking because "my wife doesn't like the smoke."

The factory is now planning to buy more equipment to reduce the tar and nicotine content in its cigarettes in order to better compete with foreign brands, which are expected to increase their presence in China. The company also hopes exports to Southeast Asia, which now account for about one-fifth of production, will grow.