China suspends tobacco joint ventures

China has suspended all new cigarette and tobacco foreign joint ventures, it was reported today, raising doubts over a claim by British American Tobacco that it has permission to manufacture cigarettes on the Chinese mainland.

“The decision is made on the grounds the Chinese tobacco market is saturated and it has surplus cigarette production capacity,” the official Xinhua News Agency said.

But the report said China would allow co-operation in upgrading technology, and in importing high-quality tobacco leaf, high-grade cigarette paper and other “necessary materials”.

The State Tobacco Monopoly Administration had denied claims by BAT that it had permission to build China’s first foreign cigarette factory.

The maker of Lucky Strike, Kent and Dunhill cigarettes argued that it had an approval from the highest levels of the central government for a joint-venture factory to make, distribute and sell 100 billion cigarettes annually inside China.

That would have broken the government’s long-standing monopoly on manufacturing. So far, foreign cigarette makers are limited to distributing cigarettes through local partners and helping them upgrade production and marketing.

China is the world’s biggest tobacco market, with annual sales of about 1.8 trillion cigarettes – or about 30% of worldwide sales. Foreign companies are keen for a share in a market where 60% of all adult men smoke.

The country produced 792 billion cigarettes in 2003.

The new regulations require foreign tobacco companies to first approach the China Tobacco Import & Export (Group) Corporation and its subsidiaries under the Chinese State Tobacco Monopoly Bureau and China Tobacco Corporation before embarking on any proposal to import tobacco products, Xinhua says.