[Intl-tobacco] BAT Joint Venture in China in Doubt

[robert weissman]

Financial Times
New doubts over BAT's Chinese cigarette venture
By Richard McGregor in Shanghai
Published: November 20 2004 02:00 | Last updated: November 20 2004 02:00

China's tobacco monopoly says that new joint ventures with foreign
manufacturers will not be approved "in the near-term", throwing further
doubt on British American Tobacco's ability to press ahead with its
ambitious plans in the world's biggest cigarette market.

Zheng Benfu, the general manager of China Tobacco Import & Export, an
arm of the country's tobacco monopoly, said the country would not allow
any more joint ventures with foreigners because the market was already
"saturated".

Mr Zheng's remarks, made this week at a World Tobacco Symposium meeting
in Kunming, Yunnan province were confirmed by an official of the
organisation yesterday and by executives present at the speech.

BAT announced earlier this year that it had reached agreement with the
central government to build a =A3800m ($1.48bn, =801.14bn) plant
manufacturing up to 100bn cigarettes a year in China, most likely in
Sichuan province.

However, the announcement in July was immediately denounced by the state
tobacco monopoly, a body that has consistently resisted foreign entry
into what is one of the country's largest industries.

Conflict at the top of the bureaucracy in China over the BAT deal
reflects the desire of some policymakers to increase competition and
efficiency by allowing foreign investment, and the determination of the
present monopoly to resist it.

Mr Zheng did not mention BAT by name in his speech and his remarks were
in some respects a simple restatement of his agency's policy of
longstanding opposition to joint ventures.

BAT declined to comment.

An official of the agency said yesterday that no ventures would be
approved in the "near-term", without defining the time-frame.

The official said co-operation with foreigners would concentrate on
research and importation of high-grade leaf, tobacco paper and machines
for manufacturing.

The sale of cigarettes remains an immensely reliable and important part
of China's tax base, contributing 10 per cent of national revenues, as
well as funds for many local governments.


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Nov 19, 11:07 AM EST

China Cancels Cigarette, Tobacco Ventures

By ELAINE KURTENBACH
AP Business Writer

SHANGHAI, China (AP) -- China has suspended all new cigarette and
tobacco foreign joint ventures, state media reported Friday, raising
doubts over a claim by British American Tobacco PLC that it has approval
to manufacture cigarettes on the Chinese mainland.

"The decision is made on the grounds that 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 cooperation in upgrading
technology, and in importing high-quality tobacco leaf, high-grade
cigarette paper and other "necessary materials."

The State Tobacco Monopoly Administration, or STMA, did not answer calls
for comment Friday morning.

The monopoly earlier had denied claims by British American Tobacco that
it had permission to build China's first foreign cigarette factory.

The maker of Lucky Strike, Kent and Dunhill cigarettes insists that it
has 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.

"In July this year we announced that we had received approval from the
central government to build a factory in China. Our authority did not
involve the STMA," British American Tobacco said Friday in a statement
from its London headquarters.

Government approval of such a joint venture 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 percent of worldwide sales.
Foreign companies are keen for a share in a market where 60 percent of
all adult men smoke.

The country produced 792 billion cigarettes in 2003.

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