Ｎｅｗ Ｐｏｌｉｃｙ Ｃｈａｌｌｅｎｇｅｓ Ｔｏｂａｃｃｏ Ｉｎｄｕｓｔｒｙ

On August 28, 2005, the National Peoples Congress of the PRC approved the Framework Convention on Tobacco Control (hereafter FCTC). On January 6, 2006, the FCTC took effect in China. But a three-year cushion period was given to China for the adjustment of laws and policies.

Three years passed quickly. January 9, 2009 was the expiration date of the cushion period after China signed on the FCTC.

As a contracting party of the FCTC, China promised to implement the regulations of the FCTC on tobacco control after the cushion period. From then on, the cigarette cases in China should have not less than 30% of the areas with the warning slogans or pictures.

Both the industrial policies and situation of Chinas tobacco industry have been blamed for a long while. But the profit and tax of the tobacco industry takes a big proportion in the fiscal income of the country. The reform is always slow and stagnant. The implementation of the FCTCs regulations is undoubtedly a great challenge for Chinas tobacco industry, as well as a good opportunity for the reform.

Image or Market?

“Actually, the FCTC took effect from the year of 2003. Since then, a lot of restrictions have been exerted on the worldwide tobacco industry. China also began its reforms and exerted supervisions over the tobacco industry from 2005, trying not to objectify the relevant regulations of the FCTC,” said Dr. Zhou Yangmin, a famous tobacco expert in China.

As a signatory country of the FCTC, China must follow several regulations on tobacco control, of which the regulation on the package plays a core role.

At present, more than 30 countries governments require that the warning slogans shall cover more than half of the total area of the cigarette cases. For example, the required proportion of the area in Australia is 60%; in Belgium and Switzerland it is 56%; in Finland it is 52%; and in Brazil, Singapore and Canada it is 50%. There are also 12 countries whose governments have already worked out a plan to ensure that there are warning pictures on the cigarette cases, e.g. the rotten lungs and rusty teeth.

Chinas government has already taken many measures in the control of the cigarette smoking of the adolescence and the cigarette prohibition in the public areas. Most of them are effective. But it does not well in the warning slogans on the packages. At present, only six small Chinese characters meaning “smoking is bad for health” can be seen on the side of the cigarette case, which is far away from the standard of the FCTC.

According to Dr. Zhou, the possibility of carrying out the regulations on warning slogans mainly depends on four aspects: the first one is the understanding level of the tobacco enterprises on those regulations; the second one is whether the government is willing to carry out those regulations forcibly; the third one is whether the smokers can be affected by those warning slogans and pictures; the fourth one is the anti-tobacco ability of the ordinary people.

Chinas government certainly doesnt idle away its time when facing the blame. The tobacco industry of China has been trying to change itself. A lot of efforts are particularly put in lowering the contents of tar and the toxicity of the cigarettes.

On January 1, 1992, the Law of the PRC on Tobacco Monopoly was issued and carried out. It is definitely stipulated in Article 18 that the contents of tar and the sentence “Smoking Is Bad for Health” shall be seen in the package of cigarettes or cigar.

On January 1, 2002, the State Tobacco Monopoly Administration gave out additional regulations on the warning slogans on cigarette packages: the Chinese sentence “Smoking Is Bad for Health” shall be seen on the cigarette cases, cartons and packs. The font size of the warning slogans on the cigarette cases shall not be smaller than 10.5 pounds; and the font size of the contents of tar and nicotine shall not be smaller than 8 pounds. In addition, those words shall be protruding and clear and can be seen against obvious background on the side of the cigarette cases.

Actually, the packages of the exported cigarettes from Chinas tobacco enterprises conform to the regulations of the international convention, having warning slogans and pictures on them. But those things are rarely seen in Chinas domestic market.

Influence from FCTC

“In my opinion, the power of antagonists is much stronger than the protagonists, which means that it is not very likely for the regulations to be carried out,” said Dr. Zhou. However, under the special condition of China, some disguised methods may be adopted. For example, there are no definite regulations on the picture and position of the warning slogans in the FCTC. There is a large space for alternation.

“We said that the regulations would be carried out in January 2009 long ago. This is a kind of symbolic time and the government has not formulated a detailed calendar for implementation,” said Dr. Zhou. The logistics system of Chinas tobacco industry determines that the recycling period is comparatively longer. If the enterprises want to change the packages, it will take at least 6 to 8 months because of the order methods under the tobacco monopoly system in China.

Because the tobacco enterprises usually have large inventories and the implementation efficiency of these strict regulations is very low, the government may give a long cushion period of one or two years.

“Chinas tobacco industry was divided into two fields - production and sale. The change of the packages brings more influences upon the production enterprises. The profit space for those enterprises may be shrunk because of the new cigarette cases. However, the tobacco sales industry is almost free of the influence because it is monopolized by the State Tobacco Monopoly Administration,” said Dr. Zhou. The smokers are usually addicted to tobacco and the change of the cigarette cases may not scare off the consumers. The influence on consumers is mainly embodied in the consumption demand of the new smokers.

There is another important role of cigarettes in consumption besides the ordinary consumption – as gift. Some high-class cigarette brands always have special meanings and functions in China. Those kinds of cigarettes enjoy high prices and classes, playing an important role in the gift market.

An expert once made a special survey on the consumption of cigarettes as gift. The result shows that 25% of the smokers smoke the cigarettes sent by others. If the cigarette cases are printed with the warning slogans and “disgusting” pictures of skull and so on, the cigarettes are not suitable to be gifts. This will cause fatal hit to the high-class cigarettes.

A smoker who has smoked for a long time said that he knew clearly about the harm of smoking. He will not give up smoking because of the more easily seen warning slogans. But he will think about whether to choose the cigarettes as gifts because the pictures of “rotten lungs” or “skull” are not competent for presents.

Reform to Tobacco Industry

Due to the domestic and international factors, there are both necessities and difficulties to start the reform to Chinas tobacco industry. In Dr. Zhous opinion, there are four main fatal problems in Chinas tobacco industry.

Firstly, there is no clear line between the functions of the government and enterprises. This is a system problem haunting Chinas tobacco industry for long. The administration department is actually the enterprise, which of course results in the monopoly. The system makes some regulations on tobacco controlling exist in name only.

Secondly, Chinas tobacco industry doesnt prepare well enough for walking into the overseas market. By now there have been no solutions to deal with the international influence brought by the regulations of the FCTC and other international laws and regulations.

Thirdly, there are problems in the distribution of the tobacco brands. After a large number of mergers, acquisitions and restructurings in 2006 and 2007, some tobacco enterprises in China own many brands. The brand structure is very complicated and risk exists in the brand distribution and there is no effective way to adjust the distribution.

“I myself am extremely worried about the second one,” said Dr. Zhou, there were previous cases of the international trade risk. The lighters and textile products made in China suffered anti-dump investigation in the foreign countries. In his opinion, it is quite likely for Chinas tobacco products to have serious anti-dump problem in the future.

Because the FCTC is an international organization, most of its relevant regulations are general and there is no international standard system. Every country has its own standard. Those different standards will easily become the trade barriers, which can bring negative influence upon the export of Chinas tobacco.

According to Dr. Zhou, some tobacco enterprises based in China have already gone to the overseas market and done very well. However, those enterprises can not represent the whole tobacco industry because the number is too small. With the further development of the tobacco industry and the saturation of the domestic market, developing the overseas market has already become an inevitable trend.

“Presently there is no trend of large-scale tobacco export in China. But maybe this will happen in less than ten years. The entire industry must know this point and pay a lot of attention to it.” The industry program of Chinas tobacco industry should be strengthened. The tobacco enterprises should study the international convention and trade risks in order to deal with the problems arising in the international operation. Moreover, the industrial reforms, especially the one to the tobacco marketing institution, should be further enhanced.

In conclusion, the problem of warning slogans is neither the first challenge for Chinas tobacco industry, nor the last one. The unification of the profit and social responsibility, though hard to be realized, is a must for Chinas tobacco industry. How to realize it is a problem worth considering.