[Intl-tobacco] Talks with Marlboro underway - China Daily

[Robert Weissman]

Talks with Marlboro underway - China Daily
July 14, 2005

Zhang Lu

Tobacco giant Philip Morris is still in talks with China over the production
of its Marlboro cigarettes in China, a senior industry official said
yesterday.

"Negotiations are underway between Philip Morris and two Chinese cigarette
manufacturers," said Xing Wanli, spokesman of the State Tobacco Monopoly
Administration (STMA), at a press conference for the industry's development.

He did not give further details about the negotiations.

But he said that such technological co-operation, in which foreign branded
cigarettes could be produced in Chinese cigarette plants under a licensing
agreement, is open to foreign companies.

Last year, Imperial Tobacco, the world's fourth largest cigarette producer,
signed a 10-year co-operation agreement with Hongta Group to produce the
"West" brand cigarettes in China.

Foreign cigarette makers have been eager to set up a production base in the
world's largest cigarette market.

However, establishment of any new cigarette factories, including joint
ventures, would not be allowed, Xing reiterated yesterday at the press
conference.

He said earlier that domestic manufacturing capacity exceeds market demands
and the country is widening reform in the sector to improve the structure of
the industry and promote the establishment of some big brands.

By the end of June, industrial reorganization had ensured that the number of
cigarette enterprises had been reduced to 49, from 185 in 2001.

The administration had planned to establish 30-50 key enterprises and build
up 100 famous brands in the industry.

With the wider reforms, China's tobacco industry maintained a steady growth
during the first half of this month, said Hu Xinhua, deputy director of
STMA's general office at the press conference yesterday.

The industry made over 120 billion yuan (US$14.5 billion) in pre-tax profits
during the period, 17 per cent more than during the same period last year.

"It is expected that the supply of tobacco leaves will remain at the same
level or higher than last year, despite the serious natural disasters, like
drought and flooding, many regions experienced this year," Hu said.

The cultivation of tobacco leaf reached 1.11 million hectares, 107,000
hectares more than last year.

The administration strengthened macro control of the industry to ensure the
market supply matched demand.

Statistics show China produced 993.6 billion cigarettes from January to
June, 4.9 per cent up over the same period of last year.