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Fighting Big Tobacco

Mark O’Neill, SCMP – Jun 22, 2009

Mainland Anti-cigarette Campaigners Want to Scrap The State Tobacco Monopoly But Find Little Support for Their Cause

In a rare challenge to one of the mainland’s most powerful institutions, a scholar has proposed the scrapping of the State Tobacco Monopoly Administration and allowing private companies to compete on an equal basis in this lucrative sector. Zou Fangbin, an economics professor at the Guangdong University of Business Studies, says the monopoly discriminates against smokers and tobacco farmers, gives excessive wages and benefits to STMA officials, and encourages corruption and smuggling.

Established in January 1984, the STMA is one of the two biggest cigarette producers in the world, with Altria – the parent company of Philip Morris – in terms of sales revenue.

Its assets are more than double those of Altria, at more than US$76 billion, and it is the country’s biggest taxpayer, providing about 9 per cent of central government revenue.
China is produces and consumes the most tobacco in the world, with 350 million smokers, one-third of the global total. More than a million Chinese die each year – one every two seconds – from smoking-related diseases.

After 30 years of economic reform, a monopoly like STMA is a dinosaur. In other sectors dominated by the state, such as aviation, petrochemicals and telecoms, different state companies compete with one another, and private capital, domestic and foreign, is allowed.
Professor Zou said the current system was unfair to consumers and farmers. Farmers have to pay a 20 per cent tax on their tobacco leaf, while other farm taxes were abolished in 2006. Legally obliged to sell to STMA, they also have no bargaining power.

Consumers, equally, have to pay the high prices set by the STMA and have no choice. “Most smokers are addicted to cigarettes. The market is not flexible,” said Professor Zou.

“If there is a state monopoly in a sector, it will have a great opportunity for profit. STMA is like that. The money goes into the pockets of powerful officials, and excessive wages and benefits for STMA employees, and offers the chance for corruption. Corruption and unfair distribution of income are sources of great discontent among people.”

Such a monopoly and rule by administrative decrees lead to inefficiencies and limit competition. They also promote smuggling, of foreign cigarettes into China and domestic brands that are exported tax-free and then imported.

Officials of STMA’s head office in Beijing declined comment.

The STMA empire has more than 500,000 employees in more than 1,000 companies across 33 provinces. It is using its wealth to consolidate its member firms into conglomerates that can be internationally competitive.

In 2007, it set up an international division, to acquire foreign companies and set up new factories abroad. It exports about 15 billion cigarettes a year.

The slogan on its website is: “Raising the interests of the state and of the consumer.”
The site carries news items about improving the environmental awareness of its employees, donations by its companies to charities, successes in combating fake products, and improvements in technology and product security.

One report describes a 15-year strategy that runs until 2020, to improve the efficiency, safety and technical quality of its plants, to increase its competitiveness and maintain a healthy and stable development. It presents itself as an institution that expects to flourish for decades to come.

Chen Xieming, a business consultant in Shanghai, said that while Professor Zou’s proposal had economic merits, the government would not follow it.

“Beijing regards tobacco, like munitions or printing money, as sectors that must remain state monopolies. The money it generates is vital to the central government, which takes 80 per cent of tobacco tax, with 20 per cent going to local governments,” he said.

“Foreign models that collect tax from the sale of cigarettes are not applicable, since taxes are so hard to collect in China. Only by a monopoly of the entire process can Beijing guarantee the income.

“The interests involved are too powerful. Even among reformists within the government, there is no lobby to end the monopoly. As the Chinese saying goes, `If you cut the source of a person’s revenue, it is like killing his parents.'”

Judith Mackay, a Hong Kong doctor who has been campaigning against the tobacco industry for more than 25 years, said it was good that someone had proposed ending the STMA’s monopoly, especially if it led to debate.

“There are many pros and cons with regard to a nationalised or private tobacco industry. Traditionally, the national monopolies tend to advertise and promote less and are less aggressive about denying the health hazards or of opposing national tobacco-control action. But these distinctions are being blurred: for example, the Chinese tobacco companies sometimes advertise, where they can,” she said.

One of the best-known anti-tobacco campaigners in the mainland is Yang Gonghuan, deputy director of the Chinese Centre for Disease Control and Prevention in the Ministry of Health.
“The issue is not the monopoly but the separation of the government from the tobacco producers, as demanded by the World Health Organisation,” she said.

“How can someone supervise an industry in which he has a financial stake?”
She referred to article five, section three of the WHO’s Framework Convention on Tobacco Control, which Beijing has signed: it took effect on January 1.

It states: “In setting and implementing their public-health policies with respect to tobacco control, parties shall act to protect these policies from commercial and other vested interests of the tobacco industry in accordance with national law.”

In other words, the commercial and regulatory arms of the industry must be separate. China is the only one of the 164 signatories to the convention to have such a state monopoly.

For Dr Yang and other anti-tobacco campaigners, the key issue is public health, rather than the monopoly.

In its latest report on tobacco, published on May 31, Dr Yang’s centre said the STMA was not implementing regulations set out by WHO convention.

“Scientific evidence has shown that warning pictures on cigarette packets are one of the most effective ways to control the spread of tobacco, and more effective than traditional health education. Each year China produces 100 billion packets. If each had a health warning, this would be the biggest propaganda to control smoking,” it said.

Article 11 of the convention says pictures should be used as part of the health warnings on packets.

But packets on the mainland carry no picture and the health warning is in small letters, half in Chinese and half in English, a language most smokers do not understand. Packets of the same brand sold in Hong Kong or abroad do carry a picture warning.

“A survey of 16,000 smokers in 20 provinces found that 70 per cent do not understand the risk to health from smoking and do not want to quit,” the report said. “They are willing to give nicely wrapped cigarettes as gifts, a percentage that rises to 80 per cent among sick people and those who work in the government.

“Even among people who live in cities and are well educated, and including doctors, many do not understand the health risk posed by smoking.

“Therefore, using the platform of the cigarette packet to design an effective warning is an extremely important method of conveying the risk.”

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