China’s tobacco industry hit by big clean-up but major changes unlikely, say analysts

In China, which has some 300 million smokers, China Tobacco controls most of the country’s production and sales, but its relationship with the regulator, the STMA, is blurred.

Elizabeth Law

Elizabeth Law

The Straits Times


Big Tobacco is one of China’s largest taxpayers. PHOTO: THE STRAITS TIMES

October 30, 2023

BEIJING – An anti-graft dragnet across China’s notorious tobacco industry has netted its biggest fish yet, in the form of Mr Ling Chengxing, a former party chief and director at the state tobacco regulator.

The probe against Mr Ling, which was announced by Beijing on Monday, means that as many as 14 senior tobacco executives have been investigated in 2023, in the largest clean-up of the industry in recent years.

Dozens of mid-level tobacco executives have also been swept up in an anti-graft probe in 2023.

On Monday, China’s top graft buster, the Central Commission for Disciplinary Inspection (CCDI), announced that it was investigating Mr Ling, 66, for “serious violations of discipline” – government shorthand for corruption, but did not give further details.

Mr Ling is the first former chief of the State Tobacco Monopoly Administration (STMA) to be investigated.

Since 2021, 26 officials and senior executives from the state-controlled China National Tobacco Corporation (China Tobacco) have come under investigation. Most are from Yunnan, Jiangxi and Anhui provinces.

In February, Mr Zhu Jianhua, a former general manager of the Anhui subsidiary of China Tobacco, committed suicide after being summoned by the authorities.

Mr Zhu, who retired nearly eight years ago, had been questioned about matters relating to Mr He Zehua, a former deputy chief of STMA, local media reported citing sources. Mr He was being investigated by the CCDI.

The graft investigations have revealed how business and power are intertwined in a controversial part of China’s economy, where Big Tobacco is one of the nation’s largest taxpayers. In 2022, the tobacco industry generated a record 144.13 billion yuan (S$27.6 billion) in taxable profits.

In China, which has some 300 million smokers, China Tobacco controls most of the country’s production and sales, but its relationship with the regulator, the STMA, is blurred.

China Tobacco is the commercial arm of the STMA, and both were formed in the 1980s to consolidate tobacco production and sales in China. China Tobacco controls 97 per cent of supplies in the world’s largest tobacco market.

STMA shares offices with China Tobacco in Beijing, and staff from both outfits are regularly seconded to each other.

“The sheer amount of money that changes hands in these deals and the lack of clear regulations mean there is huge potential for corruption,” said Dr Gan Quan, director of the China office of the International Union Against Tuberculosis and Lung Disease.

The cosy relationship between state and market has been clear in the way China Tobacco has been able to repeatedly lobby for the watering down of anti-smoking legislation, he added.

“Any time any city tries to pass any new regulations, like in Chongqing, you can be sure there will be a visit by senior China Tobacco executives to the local government shortly after,” said Dr Gan.

A network of local subsidiaries is spread throughout the country, controlling not just tobacco production but also that of other components along the supply chain, including packaging, flavouring and even logistics.

In recent months, the network, too, has come under scrutiny.

Since January 2022, businesswoman Zhu Linyao has been under probe by officials in Hunan, Jiangxi and Chongqing provinces for unspecified offences.

The founder of Hong Kong-listed Huabao International has been dubbed China’s “Fragrance Queen” for running the country’s largest tobacco flavouring business, supplying China Tobacco’s factories in 19 provinces.

Much of the investigation is also focused on China Tobacco’s subsidiary in Yunnan province, the country’s biggest tobacco grower and top producer of cigarettes.

Since 2021, three top executives at China Tobacco Yunnan have been targeted for probes, including former chairman Ye Libin, former general manager Zhang Shuichang and deputy Gu Bo.

According to local media reports, executives were allegedly given bribes that included a car by businessmen hoping to get a slice of the lucrative tobacco pie.

Others caught up in the graft investigation include brothers Li Xiaoming and Li Xiaohua, who control a Yunnan-based supplier of film and paper packing products to cigarette makers.

They were placed under house arrest in late 2021 but returned to work about five months later without any charges.

Despite the recent clean-up, observers say little is likely to change if the relationship between Big Tobacco and the market regulator remains.

Dr Gan said having one body act as both producer and regulator is essentially self-regulation that gives little oversight.

Associate Professor Zhu Jiangnan from the University of Hong Kong, also doubts that the recent investigations would lead to substantial change

She notes that the probes are not targeted at the tobacco industry per se, but are part of the sweeping anti-corruption movement put in place since Chinese President Xi Jinping came to power over a decade ago.

Many of the alleged bribery incidents, uncovered during recent rounds of central inspection, reportedly took place before 2012, Prof Zhu, who is from the department of politics and public administration, told The Straits Times.

With the state having a monopoly on the tobacco industry, there is a lot of money involved with little oversight, so it is unsurprising that some “serious corruption” can be found within the industry, Prof Zhu added.

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