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Mark O'Neill

The mainland's giant tobacco monopoly plans to cut the number of cigarette brands to less than 20 next year and make two of them larger than Winston and Mild Seven, which rank second and third in global  production.
 The China National Tobacco Corporation (CNTC) is the world's largest cigarette company, with 32 per cent of the global market in 2007, worth US$378 billion. But none of the top five global brands - Marlboro, Winston, Mild Seven, L&M and Camel - are Chinese.
 'We must raise the standard of our cigarettes,' said CNTC managing director Jiang Chengkang on the company website. 
'We must develop and promote the key brands and improve their marketing.'
Jiang has chosen two brands as national champions - Double Happiness and Hill of the Red Pagoda. 
His target is annual production of each of more than five million cases, which would take them above Winston and Mild Seven, which ranked second and third in global output last year, behind Marlboro. Last year Marlboro sold 8.57 million cases worldwide, Winston 2.7 million and Mild Seven 1.95 million.
 On its website, Philip Morris International (PMI) said sales of Marlboro last year outside the United States were 302 billion cigarettes, larger than those of the next three brands combined. Overall, PMI had a 15.4 per cent share of the global cigarette market outside the US, or 26 per cent if China was excluded, with seven of the top 15 brands.
 Domestic brands dominate the mainland market, with foreign brands - including legal and illegal imports and fakes - accounting for less than 10 per cent of sales, but only a fraction of production is exported.
 In addition to the two champions, CNTC wants three brands with annual production of more than three million cases and five with  more than two million cases.
 Double Happiness is produced by CNTC's Guangdong branch and sales have risen from 390,000 cases in 2003 to 1.67 million last year, according to the corporation. 
By 2016, it aims to produce five million cases, with sales of 100 billion yuan, of which 50 billion will be taxes and profits. The company wants the brand to achieve national prominence and gradually become an international brand.
 The other top-selling brands include Zhonghua, Zhongnanhai, White Sand, Hibiscus King, Building of the Yellow Crane and Red and Black Dragon.
 This concentration of brands is part of a radical overhaul of the country's tobacco industry since Jiang became CNTC director in June 2002. At that time, China had 123 cigarette companies and over 300 brands. That year, the combined sales of China's top three brands were just 25 per cent of Marlboro's global sales.
By 2006, the number of brands had fallen to 100 and the number of companies to 34. Since then, the culling has continued, with factories switching to production of major brands. In Guangdong, for example, factories making The Good Days and The Spirit of the Five Leaves will cease those lines next year and produce Double Happiness instead.
 The CNTC can carry out such radical surgery because it owns all the tobacco factories. In 2009, it paid the state 500 billion yuan in profits and taxes, up from 450 billion in 2008, the largest contribution of any industry. State policy is to reduce the number of brands and raise the price, increasing revenue to the treasury. Prices range from two to three yuan a packet for the cheapest brands to 60 to70 yuan for the premium brands, often given as presents to those from whom you need a favour.
 'In cigarettes, Beijing is following the same consolidation strategy as in other industries,' said Li Hongbin, a legal consultant in Hong Kong. 'It wants to create 100 companies from the largest 150 state firms and get them into the Fortune 500. It wants similar giant companies in tobacco, which have a profit margin of 200-300 per cent. For that reason, it will  remain a state monopoly.'
Puffing up profits
CNTC's target figure for the annual number of cases produced of the two chosen brands is more than: 5m



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