Government coughers: Smoking is on course to kill 100m Chinese people this century. Will the latest anti-smoking policies curb it?

Government coughers: Smoking is on course to kill 100m Chinese people this century. Will the latest anti-smoking policies curb it?

Mar 1st 2014 | SHANGHAI | From the print edition

THE air in China can be deadly and not just because of the smog. Some 300m Chinese adults are smokers and, with over 700m people exposed to second-hand smoke, the country is paying a high price for its addiction. The prevalence of smoking is greater in countries like Austria and Russia since, although more than half of Chinese men smoke, barely 2% of women do. But China is still the world’s largest cigarette market and, on present trends, 100m people stand to die from tobacco-related illnesses this century. The resultant economic burden—estimated in the tens of billions of dollars—will soar as the economy and the cost of health care grow.

China is starting to take notice of the problem. Mao Zedong smoked like a chimney but it is rare to see a senior leader smoking in public now. Peng Liyuan, China’s first lady, is even an official anti-smoking ambassador. China has also taken a number of policy measures. It ratified the World Health Organisation’s Framework Convention on Tobacco Control (FCTC) in 2005. The central government promoted a partial ban on smoking in public places at health-care facilities and in schools. Some large cities have announced restrictions on smoking in indoor public places.

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Although these proclamations look impressive on paper, they have not amounted to much in practice. Smoking is less common than it was in urban offices and restaurants but China has hardly kicked the habit. In fact, the revenues of the Chinese cigarette-manufacturing industry shot up from 285 billion yuan ($47 billion) in 2005, when the FCTC was ratified, to 757 billion yuan in 2012 (see chart). Medical studies add to the sense that the damage done by tobacco is set to rise. Hence talk of beefing up efforts to curb smoking. At the end of 2013 the State Council, China’s cabinet, banned officials from smoking in hospitals, schools and on public transport. And the National Health and Family Planning Commission says it is working with the State Council on a nationwide ban on smoking in indoor public places.

But even then the impact may be limited, for two reasons. The bans are half-measures that fall far short of the proven mix of policies advocated by experts. And the tobacco business is so entwined with government that it is likely to thwart any effective anti-smoking effort.

According to the WHO’s studies of what has worked around the world, anti-tobacco campaigns need six planks. The first is reliable data on tobacco use and prevention, which is lacking in China. The second is the sweeping imposition of smoking bans, not the partial bans still being mooted in Beijing. Third, countries must help smokers quit with well-funded, accessible schemes.

Another plank is to educate smokers on the harms of tobacco. A study published inTobacco Control, a journal, in 2010 found that only two-fifths of Chinese believed smoking causes coronary heart disease and only a fifth knew that it leads to strokes. The WHO also advocates a complete ban on marketing. But China’s cigarette brands have found many ways to circumvent official prohibitions, for example by setting up charities that fund schools and sporting events in their name (though officials say they will now crack down on this practice).

The final prescription from the WHO is also the most important: heavy taxation. Many studies show that tobacco taxes are highly effective in reducing consumption. This approach has worked in poor countries like South Africa as well as in rich ones like France. But Chinese cigarettes are taxed so lightly by international standards that the cheapest packs in rural areas sell for just two yuan (35 cents); in cities, a cheap pack costs just five yuan.

A study published on February 18th in the British Medical Journal used a computer model to calculate what would happen if China properly implemented the WHO’s policy recommendations. By 2050, it found nearly 13m smoking-related deaths would be averted, and more than 154m “life years” regained. It also predicts a 40% reduction in the prevalence of smoking.

Will China listen to the experts? Perhaps, but the second great obstacle is the influence of the tobacco lobby. China National Tobacco Corporation has a near-monopoly on tobacco sales in China. It is overseen by the State Tobacco Monopoly Administration. This is supposedly an independent entity, but the two share managers and a website and have intertwined organisational structures. Li Keming, brother of Li Keqiang, China’s prime minister, holds a senior post in both. Cheng Li of the Brookings Institution, an American think-tank, calls this the “last bastion of China’s planned economy”.

Planners have consolidated the once-fragmented industry. In the decade to 2010, 185 cigarette firms and 1,800 brands have shrunk to just 30 firms and 133 brands. Foreign brands are relegated to a niche market in China but the ciggy bigwigs now have their eyes on global expansion. They want to create big brands to go up against the Marlboro man overseas.

China’s government is hooked on cigarette revenues. In 2012 the tobacco industry turned over 717 billion yuan in profits and taxes to government coffers, which made up 6% of official revenue. Not surprisingly, tobacco is as big in Beijing politics as petroleum and property. And in provinces, like Yunnan, where they grow tobacco, that influence is even greater.

In theory, the central government could drive up the cost of smoking without losing income. Since it controls the monopoly, any lost profits can be made up as tax revenues. But costlier cigarettes would not be popular on the street and leaders may not want to risk it. And since the industry regulates itself, it is unlikely to suppress the source of such handsome profits.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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