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Tobacco in China (Part 2): Death And Taxes
By Paul Midler | October 29, 2007
More than 1.1 billion people smoke, and China is home to roughly 300 to 340 million of these smokers. The harmful effects are known, and World Health Organization (WHO) estimates that one-third of all Chinese males below the age of thirty today will eventually be killed by tobacco. China will undoubtedly face high economic costs down the road as a result of its high tobacco usage rates.
Tobacco’s origins can be traced to North America, actually, and when Christopher Columbus first saw natives smoking, he noted its addictive properties. In the centuries that followed, European physicians would claim that tobacco cured all sorts of ailments, and in the 17th century doctors would recommend smoking as a way to ward off the plague.
The Chinese took a different approach to tobacco around time time. Aware of its ill effects, the Ming Emperor in 1638 made smoking a crime punishable by decapitation. Today, the attitude is a positive one. One survey conducted revealed 61% of Chinese smokers believe smoking causes “little or no harm”, and a great many believe, quite the opposite, that cigarettes are healthful.
It’s a profitable business, tobacco - margins are much wider than for export-related products. The economy benefits, but the biggest beneficiary of tobacco is by far the government. Cigarettes generate more tax income for China’s central government than any other industry with an estimated 8-12% of national tax revenue coming in from the big leaf. A World Bank data sheet (below) suggests just how far this figure is from world averages.
China’s tobacco industry is a monopoly with one group, China National Tobacco, serving as the largest cigarette manufacturer in the world. It has some 130 cigarette factories producing 400-900 separate brands (the figure depends on who you ask, apparently, or what you call a brand). No trademark has more than 4% market share, and foreign brands together account for only 3% of the market. Cigarettes benefit the central government, but there are many fingers in the pie at the local levels also. Despite the long-term harm it is doing to China, it is not likely anyone in government will be discouraging the nasty habit anytime soon.
Country —– % of Gov’t Revenue From Tobacco Tax
United States — 0.4
Columbia — 0.7
Egypt — 0.8
Zimbabwe — 1.0
Estonia — 1.2
Costa Rica — 1.4
Denmark — 1.7
Finland — 1.7
India — 1.8
Spain — 2.2
Bulgaria — 2.80
United Kingdom — 3.0
Australia — 3.0
Chile — 3.4
Argentina — 4.0
Brazil — 4.9
Nepal — 5.4
Greece — 7.7
China — 9.1Source: World Bank
Topics: China |
October 29th, 2007 at 9:44 pm
You may not have the numbers, but China is also a major (surprise!) manufacturer and shipper of counterfeit cigarettes and distributor of cigarette making machinery and raw materials worldwide.
In fact, a lot of the Chinese raw materials and machinery are now destined for a rogue country that has its own very prosperous counterfeit cigarette industry: North Korea.
Wonder how these numbers will affect the bottom line for the Chinese gov’t?
October 29th, 2007 at 9:50 pm
Hunxuer - You’ve ruined the surprise. Counterfeit cigarettes is the subject of the last installment in this short run. Big problem with counterfeits is lowered quality - “Benson & Hedgeclippings”.
October 29th, 2007 at 10:11 pm
In the long run this can at least solve the shortage of females in China, unless they also start smoking of course.
October 29th, 2007 at 10:21 pm
Fons - That’s a very good point!
October 30th, 2007 at 2:05 am
Benson & Hegemony is way off base. The quality of a lot of the fakes now is too good. This is why Big Tobacco is having quite a time of developing new strategies to fight this ever changing hydra.
October 30th, 2007 at 7:29 am
The company behind any real brands has an incentive to monitor quality. Counterfeit operations don’t have the same concerns.
You can probably make the same case about a market that has hundreds and hundreds of brands instead of a smaller number.
“Benson & Hegemony”… indeed.
November 1st, 2007 at 3:15 am
The trouble is, Fons, that young women are starting to smoke.