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The World's Biggest Tobacco Company
China Tobacco Examined
Author’s note: If you want to watch the video first, it is linked below
China Tobacco is still the world’s biggest smoking company and smoking is still lethal to the millions of those addicted to it. I did this video a long time ago. The statistics might be a bit dated by now, but so much is still accurate. According to the Statista, China Tobacco likely generated record profits in 2020. From Jan to October 2020, China Tobacco churned out $20 billion in profit. Just the first ten months of the year.
The habit is quite engrained. I remember a friend’s father telling me, cigarette in hand, that Chinese people’s genes were superior and thus it is okay to smoke.
If you are a smoker, I really do urge you to try and quit. Just think about it.
If you like the stuff that you see here and want to support the channel, I invite you to take a look at the Patreon. The Early Access tier has a long backlog of videos which I think you’ll enjoy. For example, a video about COMAC and China’s attempts to build a Boeing of their own
This is a subject with personal meaning for me as my paternal grandparents died from smoking-related causes.
China not only has the largest population in the world but also has the most smokers in the world. 53% of the adult males in China smoke. Half of those people started before the age of 20. 300 million Chinese smoke, and some 700 million are affected by secondhand smoke. That is larger than the populations of Indonesia and the United States combined.
Nearly the entirety of this titanic market is controlled by a single company — China Tobacco. The company produces some 2.3 trillion sticks a year, 4x the size of the second largest cigarette-consuming country — the United States — and roughly the size of the next 7 countries combined.
It is one of the four most profitable companies in the entire country and responsible for a significant percentage of tax revenues for both the central and local governments.
Knowing what we know about just how devastating smoking is to people’s health, this is a major health problem for the most populous country in the world. The big problem with pushing anti-tobacco measures in China though is the incestuous relationship between the government and the Chinese tobacco monopoly.
If you thought it was hard to fight against private tobacco companies like Phillip Morris and British American Tobacco, imagine how hard it would be when the tobacco company is owned by the state itself.
The History of Tobacco in China
Merchants first brought tobacco into China in the 16th century but smoking only started to gain a hold in society during the 1890s. In the first half of the 20th century, foreign giant British American Tobacco (BAT) dominated the industry with some 80% of the market. James B. Duke, BAT’s first chairman and namesake of Duke University, famously asked a globe be brought to him, and then pointed at China as his key market. He knew exactly what was up. By 1937, the US-based BAT was selling 55 billion sticks a year in China, exceeding all other foreign countries combined.
Unfortunately for them, 1937 marked the high point for BAT in China. In 1941, the invading Japanese seized all of the cigarette company’s Chinese assets. And then in 1953, the newly formed People’s Republic of China ejected BAT for good, nationalizing the country’s entire cigarette industry. Production and industry control decentralized, controlled at the provincial (state) level by monopoly offices within other departments. Small factories popped up across the country, making and selling their own brands of cigarettes.
The amazing thing is that even despite the disasters of the Great Leap Forward and its famines, the Chinese cigarette market continued to grow at a rapid pace — dropping only from 11% annually to 5%. After Deng Xiaoping announced his economic reforms in the late 1970s, the China National Tobacco Corporation was established to centralize control over the many provincial cigarette companies that had popped up around the country.
All revenues and profits would flow through CNTC to be redistributed between the central government (Party) and its provincial subsidiary governments. Then a few years later in 1983, the central Chinese government established the State Tobacco Monopoly Administration (STMA), ostensibly to regulate CNTC. The provincial Chinese governments did the same, establishing their own SMTAs to “regulate” their individual cigarette factories.
This regulation structure mirrors that in the West and gives the illusion of tobacco regulation. Of course the reality as it so often is in China is not what it seems.
The Reality of China Tobacco
This long convoluted history explains the twisted, convoluted structure of China Tobacco. To the outsider, China Tobacco is a singular, big monopoly company like Altria or British American Tobacco with a dedicated regulator. This tranquil veneer though hides a decentralized mess. China Tobacco and its “regulator” are basically the same thing and so are all of its little provincial subsidiaries.
The provincial governments deeply depend on the revenues provided by the 20% tax on the production and sale of tobacco by these individual cigarette monopolies. They also like the jobs — China Tobacco employs half a million workers in varied areas across China. Tobacco leaf production is considered the “pillar of the economy” in poorer areas that otherwise struggle to generate jobs.
Thus in order to preserve these monopolies, provincial governments passed protectionist measures to protect their local China Tobacco affiliates regardless of how efficiently or productive their companies are. Over time though, the central authorities have consolidated these subsidiaries together to create national brands with prestige and meaning.
China Tobacco is the only legitimate buyer of tobacco leaf in China and produces a third of global production. In 2011, the monopoly delivered an estimated $95 billion in profits to the Central Government, a stunning 7.5% of total central government revenue. Considering the market continues to grow at some ~10% annually, that profit is guaranteed to be that much higher today.
This would make China Tobacco the fourth most profitable company in the country — only trailing two of China’s biggest banks and one of its petroleum duopoly.
The Chinese smoking market is so large that one foreign tobacco company executive mused: “Thinking about Chinese smoking statistics is like trying to think about the limits of space.” This has a double meaning.
Not sure if you are aware, but smoking kills. 1.2 million Chinese people a year die of smoking-related illnesses, 90x more than HIV/AIDS. That is expected to go up to 2 million by 2020. The Chinese smoker today has a life expectancy 15 years shorter than the average non-smoker. In other words, and this is a remarkable statistic if you think about it, a third of all Chinese men now aged 29 or younger will die prematurely of smoking-related illnesses.
What is even more concerning is that people are getting hooked younger and younger — the average age someone starts smoking fell from 22 in the 1980s to 19.7 today. So this gets worse each year that China does nothing about its smoking industry.
Anti-smoking efforts are — to say the least — feeble. China has strong anti-smoking laws on paper but in reality they are patchily enforced.
Nevertheless, a number of public intellectuals and health officials have taken the lead to push greater enforcement of anti-smoking laws throughout the country. These are laws that are already on the books — the government and police force need to enforce them.
In a country where political activism and public movements are not encouraged, the fact that people are doing this and succeeding in small ways is pretty remarkable.
Foreign tobacco companies have had a small hand in things as well. British American Tobacco never deviated from its goal of returning to China after being ejected in the 1950s. During the 70s economics reforms, they looked at ways to partner with CNTC to cross-share brands. It did not get very far — BAT quickly realized that CNTC only wanted to acquire foreign technology and management skills without giving up anything and so pulled back out. But before they did they used their skill in undermining anti-smoking efforts abroad to cast doubt on the effects of second-hand smoking and water down anti-smoking marketing regulations under the guise of “marketing freedom”.
But I do not want to overstate BAT’s impact. You can’t blame foreigners for the smoking situation in China. The majority of the profits go to the local and central governments — not to evil tobacco barons in countries abroad. As they like to say, it is hard to get someone to understand something if their paycheck depends on them not getting it.
In the apparent view of the Chinese leadership, China Tobacco brings good, well-paying jobs and that matters even if those jobs indirectly lead to people dying. At a legislative meeting in 2007, Deputy Director of the SMTA Zhang Baozhen — supposedly the tobacco regulator! — said: “We attach great importance to the notion that smoking is harmful to health, but the absence of cigarettes will undermine the stability of the country.”
(I will now point out that in the 25-member Politburo that runs the country — just five smoke and none of those people are on the central standing committee.)
Of course, this view discounts the negative externalities associated with taking care of those suffering from late-stage smoking-related illnesses. Healthcare costs for these are merely delayed — waiting to hit later on when people and their societies can least afford them. And Chinese people have proven time and time again that their environmental and public health issues matter.
The more people see their relatives die of smoking related illnesses while not being able to afford treatment, the more people get angry at the government for not doing something about it. And that is the sort of thing that the Chinese communist party leadership really do care about.
Thanks for watching. Like I said, my grandparents died from smoking so this is near and dear to my heart. Thanks to cigarettes, they died before I was born and I never got to know or even meet them. Smoking kills. It is never too late to start quitting.