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Christine Chan

Josephine Ma

Mainland cigarette manufacturers are feeling the heat from the anti-smoking drive sweeping the country, but the blow will be far from fatal because of the country's vast potential.

  'For years, smoking was all the rage in China,' said Wang Daoping , public relations officer at Yunnan's Yuxi Hongta Tobacco (Group) Co, the mainland's cigarette manufacturing giant.

  'It's not easy for smokers to kick the habit, even though there is a growing backlash against smoking,' she said.

  In spite of the anti-smoking sentiment and increasingly tough restrictions on smoking in public places, domestic cigarette producers are optimistic for future earnings growth.

  Their hopes are reinforced by nascent foreign participation - representing only 2 per cent of the market - double-digit growth in cigarette consumption and the apparent lack of regulations to effectively carry out the smoking ban.

  From 103.1 billion yuan (about HK$95.7 billion) in 1992, China's 300 million smokers spent 128.2 billion yuan on cigarettes in 1993 and 142.5 billion in 1994.

  The robust demand will see China becoming the world's biggest cigarette market, with forecast demand of 1.9 trillion cigarettes by 2000.

  With that in mind, domestic producers seem to be undaunted by the anti-smoking drive, intensified as Beijing on May 20 joined the 20-odd Chinese cities to prohibit smoking in public places.

  Yuxi Hongta has no plans to cut its output, continuing to churn out a massive 50 billion cigarettes a year.

  Its Hong Ta Shan brand is one of the country's most famous. It also produces the A Shi Ma and Hong Mei brands.

  While Beijing citizens are betting the high-profile anti-smoking campaign will run out of steam pretty soon, cigarette producers are less optimistic.

  'The big thing about the ban is that it restricts smoking in conference rooms,' said Liu Fuzhi , Communist Party director at Beijing Cigarette Factory.

  In China, cigarettes served in conference rooms at government departments or enterprises are at the state's expense and represents a big part of consumption.

  A ban on smoking at the workplace will effectively strangle sales there, crimping earnings of producers.

  'The ban will undoubtedly affect our revenue in one way or another, but it is difficult to say how big the impact will be,' Mr Liu said.

  Beijing Cigarette Factory's Refined Red Zhong Nan Hai brand is designed to serve government officials at major events such as the yearly national congress. They retail at 30 yuan a pack.

  Yuxi Hongta's Hong Ta Shan brand cost between 10.5 yuan and 16 yuan per pack.

  Almost 2,000 brands of cigarettes are produced in China. Prices range from 0.6 yuan for a pack of Five Golden Flowers to 110 yuan for a pack of Yunyans.

  Government figures have shown a 1.7 per cent decline in cigarette sales and production in the first four months of the year, in part due to the anti-smoking campaign and health education programmes.

  Cigarette manufacturers, however, say the impact of the anti-smoking drive has yet to be felt in the sector in earnings terms.

  'We don't expect earnings to fall in the short term,' Ms Wang said. 'As elsewhere in the world, it is a gradual process to ban smoking.'   Last year the company made a pre-tax profit of 18 billion yuan, up 22.4 per cent from 14.7 billion yuan in 1994. A big chunk of that profit goes to the state coffers.

  Despite the encouraging profit figures, cigarette makers, faced with increasing threats from anti-smoking campaigns and stringent advertising restrictions, are quick to cushion themselves against possible risks.

  Some have come up with low-nicotine products to target a growing number of health-conscious smokers.

  There is also a strong preference for low-nicotine cigarettes among younger smokers, as increased government health warnings and education programmes take effect.

  The rising affluence of city dwellers has also boosted revenue as more smokers are switching to premium brands.

  To meet demand, Yuxi Hongta restructured its product mix in 1994 with more emphasis placed on the upper end of the products range. Profit jumped 67 per cent in that year.

  Diversification is another strategy that has been adopted by the manufacturers.

  'With the worldwide campaign against smoking, we have diversified into investments in power plants, water facilities and other industries to help ensure a steady income,' Ms Wang said.

  The company has poured two billion yuan into hydro-electric stations and a road between Kunming and Yuxi.

   China's anti-smoking campaign may intensify further next year when the official China National Tobacco Corp moves to require all manufacturers to indicate the level of nicotine on the cigarettes packs.

  However, cigarette manufacturers believe there is still some time before the Chinese smoking population kicks the smoking habit.



Anti-smoking drive fails to faze cigarette-makers