Shanghai Tobacco Group's decision to license its famous Chunghwa trademark to a foreign spirits company is a shrewd one in the light of industry changes within China, where foreign makers are moving swiftly to establish a foothold in a newly liberalised market.
World Trade Organisation rules have opened the mainland market wide to foreign competition. In January last year, import tariffs for cigarette tobacco fell to 10 per cent from 40 per cent and those on pre-rolled cigarettes to 25 per cent from 65 per cent.
Under tobacco-friendly conditions, popular foreign brands such as Mild Seven, Camel and Hilton are muscling aside Chinese brands in the world's largest cigarette market.
The changes have accelerated Shanghai Tobacco's drive to build an international brand. With the tough new international restrictions on tobacco advertising outlined in the Framework Convention on Tobacco Control, which came into effect yesterday, using something other than tobacco as a flagship product is a sober move.
Shanghai Tobacco's joint venture with French cognac maker Camus and DFS to produce and distribute a new brandy under the Chunghwa banner - now available in Singapore's Changi Airport - provides means of propagating the brand abroad without running foul of cigarette advertising laws.
In markets where marketing restrictions are less of a concern, Shanghai Tobacco concentrates on its core tobacco business. Its two-way trademark deal last year with Gallaher to produce and market Shanghai Tobacco's Golden Deer brand in Russia is an example.