China's Smoking Curb is Bad News for Big Tobacco

Falling smoking rates in much of the industrialized world have made tobacco companies turn to China as their next great hope. The U.S. tobacco industry's overseas sales grew almost 20 percent last year, and a nation of 350 million puffers adding five million more each year and few restrictions on advertising would make the People's Republic the jewel in the crown of global cigarette marketing plans. In keeping with its World Trade Organization promises, China has been slowly opening its domestic market to foreign brands, lowering tariffs from 65% to 25% in 2004, and streamlining the rules for sales and distribution. British American Tobacco has tried (so far unsuccessfully) to set up a joint venture to manufacture cigarettes in China. U.S. giant Altria, formerly Philip Morris, has also been negotiating with the government to manufacture and sell its top-selling Marlboro brand on the mainland. Indeed, with most Chinese smokers hacking away from the harsh, high-tar brands produced by the state-owned monopoly, the China National Tobacco Corporation, foreign companies have been stumbling over themselves to hawk their wares.

Not so fast, the Chinese government now seems to be saying. This week, the state legislature ratified a World Health Organization treaty aimed at curbing smoking, and government officials promptly announced a ban on cigarette sales through vending machine. The treaty also calls for a comprehensive ban on tobacco advertising and sponsorships and legislation requiring that prominent health warnings be displayed on packages, discourages deceptive labeling (such as describing cigarettes as "light") and encourages litigation as a tool to stamp out the habit. China joins more than 75 countries (although not the U.S.) in ratifying the treaty, which went into effect earlier this year.

How serious enforcement will be is another matter, of course. Laws in China have, in the past, been selectively enforced — copying and distributing CDs and DVDs may be technically illegal, but piracy is a thriving business. And the lucrative revenues offered by tobacco taxes — nearly 9 percent of the state's tax income in 2003 — are a tough habit for any government to kick. Public health experts, however, praised the ratification as an important step in lowering China's rising rates of lung cancer and tobacco-related disease. About 1.2 million Chinese die of smoking-related deaths annually and the World Health Organization has predicted that one third of the 300 million young men in China will die prematurely of smoking-related ailments. Any measures to dissuade the estimated five million Chinese minors who start smoking each year thus comes as welcome news to health advocates. Less so for the tobacco companies hoping to stake a claim in the world's largest market.