Beijing losing in fake-cigarette war (fwd)

[Robert Weissman <rob@essential.org>]

COUNTERFEITS Beijing losing in fake-cigarette war
by MARK O'NEILL/ in Beijing
Source: South China Morning Post, Thursday, 10/21/99

The mainland is losing the battle against counterfeit cigarettes, with the
number seized this year triple that of two years ago and local government
and Communist Party officials allegedly involved in the trade.

The country is the world's biggest producer and consumer of cigarettes,
with output last year of 1.67 trillion cigarettes, down 0.5 per cent on
1997, which generated 77.7 billion yuan (about HK$72.5 billion) in taxes
or 14 per cent of central government revenue. An estimated 320 million
people smoke.

This offers a lucrative market for counterfeiters. So far this year, the
State Tobacco Monopoly (STM) has seized 100 million cigarettes, triple the
1997 level, worth about six billion yuan, the Outlook magazine said.

The number of brands copied has increased from 30 last year to more than
100, many of them imported varieties, with 35 kinds of counterfeit
Marlboro alone, the mainland's favourite foreign brand. Foreign-brand
fakes have also been discovered in markets outside the mainland.

The abundance of fakes, along with weakening demand for the domestic
product, saw sales from state plants - the only legal producers - fall 8.6
per cent in the first half of the year.

In recent years, the STM has spent 1.57 billion yuan on fighting
counterfeiters, seizing more than 5,000 cigarette-making machines, but its
efforts are failing.

Counterfeit production began in 1992 in three coastal cities - Shantou,
Guangdong province, Zhangzhou in Fujian and Wuzhou in Guangxi - and spread
inland. It has been increasingly automated and mechanised, with some
producers able to turn out three billion cigarettes a year.

Companies have hidden machines underground or inside mountains or mounted
them on trucks or ships to make them mobile. Some are similar to
underground bomb shelters with their entrance hidden from the outside and
controlled by computers. To make matters worse, local governments and
party officials are involved and refuse to implement orders to crack down
on the trade.

In Jiang village in Yuzhou city in Henan, all the houses allegedly have a
cigarette machine, including that of the local party chief.

The worst culprit is Fujian province, to which the STM allocated 10
million yuan this year for the crackdown. Local officials reacted
lukewarmly, as many own such businesses. As a result of the crackdown, law
enforcement officers are surrounded and attacked to prevent them working.

With officers unable to mount road blocks, transport of illicit cigarettes
is easy. During the Spring Festival this year, factories in Zhangzhou,
Fujian province supplied thousands of cartons every day to markets
nationwide.

Beijing jealously guards its monopoly over the tobacco industry, one of
the most profitable in the country. Foreign investment in this sector is
negligible.