Cigarette maker to open factory in China

British American Tobacco is to become the first foreign company to manufacture cigarettes in China, it announced today.

The group, whose brands include Kent, Dunhill, Lucky Strike and Pall Mall, has been given approval from the Chinese government to set up a factory capable of producing 100 billion cigarettes a year.

It will mark the first time an outsider has moved into cigarette production in the country, which until now has been run as a state monopoly.

China is the largest tobacco market in the world with annual sales of around 1.78 trillion cigarettes.

BAT will spend £800m (€1.bn) on setting up a factory, although details of the location were not yet known.

It said the site would take around two years to complete and that it would then be several years to reach its optimum production level.

The London-based group, which already distributes cigarettes such as Kent and Chinese brand State Express 555 in China, said the move would make the country its biggest market. BAT sold around a billion cigarettes in China last year.

The new factory will be established as part of a joint venture with China Eastern Investments.

BAT’s recently retired chairman Martin Broughton said: “I am extremely pleased with the Central Government (of China)’s decision to allow British American Tobacco to significantly expand its involvement in China.”

The group has 180 factories across 60 countries and employs some 85,000 staff. It currently has 350 employees involved in distribution in China.

Earlier this year, BAT announced a 26% fall in annual profits to £1.57bn (€2.4bn) as it faced up to higher restructuring costs and losses on the sale of operations.

During a “highly significant year” for the company, BAT completed the £1.63bn (€2.5bn) acquisition of Ente Tabacchi of Italy and announced a deal to merge its US business with RJ Reynolds.