China bans new tobacco factories

Cigarette factories will not be allowed to be built in China, according to local newspaper reports yesterday, thereby thwarting the ambitions of Western companies such as British American Tobacco (BAT) to crack what is the world's biggest tobacco market.

Cigarette factories will not be allowed to be built in China, according to local newspaper reports yesterday, thereby thwarting the ambitions of Western companies such as British American Tobacco (BAT) to crack what is the world's biggest tobacco market.

The Chinese State Tobacco Monopoly Administration (STMA) told a local newspaper that the country already has enough cigarette-making capacity to exceed market demand. "China won't allow any new tobacco factories to be built, including joint-ventures," a spokesman for the STMA was quoted as saying, adding that the state would retain its monopoly on cigarette distribution.

The market is of huge importance to foreign tobacco companies, who hoped for greater relaxation of the state monopoly system to open up the market of 350 million smokers. Some 1.7 trillion cigarettes are consumed in China each year.

BAT announced last summer that it had won approval to make a "major strategic investment" in China from the central government in Beijing. It plans to build a factory in a joint-venture with a Chinese company that will manufacture 100 billion cigarettes a year. A week after that announcement, however, the STMA caused embarrassment for BAT by saying it had not approved the deal.

A spokeswoman for BAT said the latest comments from the STMA did not change its belief that it does have the authority to go ahead with its plans. "We have nothing to add since our previous statement on this. The central government of China has approved the group's major strategic investment," she said.

Clive Roberts, at Charles Stanley, said: "BAT is looking left on the shelf. There is a lot of profit for tobacco companies to make there but the Chinese authorities seem to be defensive about letting outsiders in."