China's tobacco enterprises are speeding up the industry's reorganization to foster brand awareness and improve the sector's competitiveness.
Twenty-six of the country's major cigarette makers met in southwest China's Chongqing Municipality in late October to discuss ways to expand strategic cooperation for mutual success.
The Chongqing Company of the China Tobacco Corporation, the organizer of the meeting, proposed five methods of building brand recognition and adjusting the market.
The proposal, drawn under the guidelines of the State Tobacco Monopoly Administration (STMA), received support from other participants.
The STMA created a list of the country's top 100 cigarette brands in August to guide the industry's restructuring. The administration plans to establish 30 to 50 key enterprises through mergers and acquisitions in three years, and close small cigarette factories --those with annual production capacity of less than 100,000 cartons -- by the end of this year.
The number of brands is expected to shrink from the current 300-plus to about 100.
At the meeting, the 26 enterprises also agreed to eliminate provincial and regional trade restrictions to build an open and unified domestic market.
The tobacco monopoly bureaus of the five southwestern provinces and Chongqing agreed to unify the regional market beginning this month, selling same-brand cigarettes for identical prices throughout the region.
"The purpose is to break market barriers and beat the illegal marketing channels created by differentiated prices," said Sun Zezhi, deputy general manager of the Sichuan Cigarette Selling Co.
He indicated that gross profit on cigarette sales in the province should increase 2 percent under the plan.
The 26 companies did not sign contracts holding them to the plan, but all expressed willingness to cooperate.
"Many local markets are moving toward the establishment of an open market," said Hu Xinhua, deputy director of the STMA's general office. "The purpose of the industry reshuffle is to help domestic tobacco companies deal with mounting competition from big foreign counterparts."
In accordance with its World Trade Organization commitments, China lowered its import tariff on leaf tobacco to 10 percent at the beginning of this year from the original 40 percent, and tariffs on cigarettes from 65 percent to 25 percent.
China is currently the biggest tobacco producer and consumer in the world, with an annual output of 18 trillion cigarettes and 320 million smokers, according to the Ministry of Health.
(China Daily, China.org.cn November 8, 2004)
