increased 18.7% in 2006 to a peak of 82,390 tons, and the value rose 26.2% to $409 mn. It now appears that the value for China’s leaf tobacco imports may be about $500 mn during calendar 2007. Purchases of US tobacco in the first half of 2007 had already reached 8,200 tons valued at $51 mn, a level near that for all calendar 2006. Imports have increased because of efforts to produce more quality premium cigarettes. China’s tobacco crop was relatively steady during 2004–06 at 1.8 mn tons dry weight. Cigarette output has shown slight gains recently, although dramatic changes are underway concerning the structure of cigarette manufacturing and marketing.
The boost for imports of leaf tobacco began when the import duty dropped to 10% according to WTO guidelines in 2004, compared with the previous duty of 40%. It now appears that China’s imports of tobacco will rise to a range of 100,000 tons in 2007. Brazil replaced Zimbabwe as the leading source of China’s tobacco imports in 2005, with the delivery of 42,969 tons. Zimbabwe provided most of China’s tobacco imports during 2000–03, but still, the US share rose to 10% in 2006.
China Leads The World in Cigarette Production: Recent efforts to focus on improved quality and the consolidation of cigarette output resulted in a decline in the number of brands produced. The State Tobacco Monopoly Administration has focused more upon restructuring the cigarette industry in 2007. Cigarette output averaged about 1.8 tn pieces annually during 2004–06, compared with about 1.7 tn pieces during 2000–03. Fewer but more modern factories producing higher quality cigarettes contributed to higher retail prices. The number of brands produced declined from over 1,000 in 2001 to 224 by 2006. Mergers of some larger companies should allow reduced cost of distribution to retail outlets.
The push for greater output of higher quality brands has contributed to the strong upward trend for imports of leaf tobacco. Factory managers and blending experts have arranged to have larger imports of flue-cured tobacco for blending in production of selected brands. In addition to the need for imported tobacco for blending, trade policies have moderated to make imports of selected commodities easier.
Leaf Tobacco Production Rebounded During 2004–06: Production of tobacco in China drifted downward through 2003, but rebounded to about 1.944 mn tons in 2004, and remained near that level in 2005 and 2006. Farmers in some areas of southern China have responded to higher prices for quality tobacco grown under contract. Efforts to get higher quality from farmers has tended to favor larger farmers, and some small farmers have been concerned about the way planners would seek to discourage cultivation in certain areas. Flue cured accounts for about 90% of China’s tobacco crop. Burley, dark air cured, and oriental tobacco account from most of the remainder. China’s efforts to produce more oriental tobacco have caused imports of this type of tobacco to decline sharply.
A close watch by managers of cigarette factories on prices and quality for cigarettes and the leaf tobacco used to manufacture different brands has contributed to greater imports of flue-cured tobacco and burley. Efforts to provide higher quality tobacco for export contributed to a rise or 18.8% in the average export price to $1,958.85 per metric ton in 2006.
Total Trade Picture Favors Further Purchases of US Tobacco: An added factor with some influence on the purchase of United States tobacco is the concern that the total trade deficit for US trade with China is widening. China’s total exports increased from $438 bn in 2003 to $762 bn in 2005. Exports to the US rose from $82.5 bn in 2003 to $162.9 bn in 2005. Imports from the US into China went up from $33.9 bn in 2003 to $48.9 bn in 2005, leaving a deficit of $115 bn. During the first half of 2007, the US trade deficit with China was over $120 bn.
US leaf tobacco exports to China zoomed from 195 tons in 2005 to 9,622 tons in 2006, as the value rose from $1.9 mn to $61.5 mn. The 2006 shipments included 8,623 tons of flue-cured valued at $54.8 mn and 982 tons of burley for $6.6 mn. During the first half of 2007, US exports of flue-cured tobacco to China were steady at 8,255 tons, valued at $57.4 mn, although burley shipments were down 64.5% for $1.9 mn.
Imports of Tobacco for Blending Increasing: The average price for China’s imports of flue-cured tobacco from Zimbabwe during 2006 was $6,237.91—just 5.7% below the average of $6408.38 for leaf tobacco imported from the United States. The least costly major tobacco supplier for China’s imports in 2006 was Brazil with an average price of $4,441 per ton for deliveries. Arrivals of tobacco from Zimbabwe at ports in China dropped to 15,554 tons—about half the 2003 peak of 30.216 tons. The total trade numbers regarding Zimbabwe are not that important for planners in Beijing, but the total trade situation with the US is a major topic in many ways. China’s total exports to the US are usually about five times the value for imports of US products.
Greater purchases of cotton, soybeans, and forest products contributed to a rise for total US exports to China in the last several years. During 2006, leaf tobacco was one of the fastest growing US commodity exports to China. Yet, it will take larger purchases of commercial aircraft and some machinery to help reduce the big US trade deficit with China.
Lower Import Duty Helped Spur Leaf Tobacco Imports: Along with WTO guidelines, China’s import duty on leaf tobacco fell from 40% which had prevailed in the late 1990s to 10% for 2004. This trade policy move provided opportunities for exporters in Zimbabwe and Brazil, while at first having little impact on purchases from more expensive sources. A reduction for the import duty on cigarettes from 65% ad valorem to 25% has caused China’s cigarette manufacturers to strive to improve quality and limit competition from imports. In 2003, imported brands usually cost about 50 cents per pack more than domestic premium brands. Most of the cigarettes sold in China are for very low prices, often less than 20 cents per pack.
Reduced Purchases of Tobacco from Zimbabwe Offset by Greater Imports from Others: During 2002 and 2003, China’s had imports of flue-cured tobacco from Zimbabwe valued at $312 mn for the two years combined In contrast, US shipments of flue-cured tobacco to China in those two years had a value of only $2 mn. Therefore, it may be concluded that Zimbabwe beat the US in sales of flue-cured tobacco to China by an astronomical extent for those two years. The situation changed in 2006 as Brazil captured much of the growth in China’s leaf tobacco imports, and arrivals from Zimbabwe declined. The decline for imports from Zimbabwe has been slower than some would have expected. Some Zimbabwe flue-cured tobacco was stored in Mozambique and other countries before deliveries by farmers to traders in Zimbabwe dwindled. Also, as farm output and sales dwindled in Zimbabwe, tobacco companies with idle capacity for processing flue-cured tobacco to remove stems contributed to a rise in imports from Malawi and Zambia for stemming.
Brazil is the Major Supplier of China’s Tobacco Imports: Brazil has been in second place among suppliers of China’s leaf tobacco imports during 2002–04 when deliveries averaged 16,756 tons. Tobacco imports from Brazil increased to 42,969 tons in 2005 and advanced 21.3% to a record 52,106 tons in 2006, valued at $231.45 mn. As deliveries from Zimbabwe decline in the next several years, Brazil is likely to help fill the gap. The outlook for a continuation of large deliveries of flue-cured from Zimbabwe to China is not good. Farmers of British or other European origin were among the leading 4,000 tobacco producers in Zimbabwe between 1980 and 2002. Then came the big move to take land and farm items from those farmers in 2003. It might be imagined that the concern about keeping European markets for Zimbabwe’s tobacco exports contributed to the financial safety net for previous commercial farmers for two decades. When the European Union began to criticize Zimbabwe’s human rights situation, it appears there was a plan to shift away from reliance on tobacco exports to European markets. The boom in shipments of Zimbabwe’s tobacco to China provided a convenient alternative market for Zimbabwe for a while.
China’s imports of leaf tobacco increased in the last several years from some countries where displaced Zimbabwe farmers began commercial tobacco cultivation. China imported 3,049 tons of tobacco valued at $16.6 mn in 2006. Managers of factories have strived to improve the quality of cigarettes for a number of reasons. They hope to limit gains for imports of cigarettes if their output of certain quality brands is sufficient to meet the competition. The WTO guidelines mean a new setting for cigarette marketing in China. The type of protection previously available for domestic brands has changes.
Tobacco Yields Fluctuated in Recent Years: The average yield for 1.35 mn hectares of tobacco grown in China increased 1% to 1.8 tons per in 2004, but then declined about 3% in 2005. Despite efforts by policy makers to seek a reduction in farm production of tobacco, the high profits from its cultivation contributed to a rise in output to about 1,944 mn tons in 2004, compared with 1.8 mn tons in 2003. Some farmers prefer tobacco cultivation over most other crops in provinces of southern China. Yunnan Province has been a leading tobacco producer in recent years.
Some of the farmers who are told to stop growing tobacco for some economic theory idea in the past were not happy with that news. Efforts to shift tobacco cultivation from small farms to larger farms using improved technology caused a shift to cultivation in some provinces of southern China.
Cigarette Output Remains Steady as Planners Seek to Greatly Improve Quality: Cigarette production in China remained steady in the last two years in the range of 1.9 tn pieces annually. There has been a concentration of output to larger more efficient factories with new modern equipment. The number of cigarette factories in China is declining as smaller facilities with old equipment are closed or converted to some other activity. The remaining factories are expected to be profitable. Tax revenue from cigarette sales is in the range of $6 bn annually. Yet, taxes account for a much smaller share of the average retail price of cigarettes than in Europe and North America, where it is over 70%.
Brands with spices and herbs are important in China. The traditional brands made primarily from flue-cured tobacco have declined in market share as more blended American type cigarettes were manufactured. The share of oriental tobacco in the blend remains relatively small.
Tobacco Stocks Declining: Tobacco production was about a third higher in the 1990s than during 2006. The State Tobacco monopolization Administration (STMA) has managed the closing of smaller less efficient factories, sometimes to the grief of small towns where they were an important source of employment. In 2002, STMA closed down 11 factories. Stocks of tobacco held in China are steadily declining.
Cigarette Output Increased Slightly in Recent Years: Total output of cigarettes may rise to over 1.9 tn pieces in 2007, compared with 1.723 tn pieces in 2002 to about 1.8 bn in 2006. Premium brands in attractive packaging will be ample for sale during the Olympics in 2008. Greater output of quality cigarettes has tended to limit prospects for imports. Some shoppers buy cigarettes on their day trips to Hong Kong that are not part of the import numbers.
Greater Cigarette Exports Sales to Newer Markets Contributed to 8% Rise in 2006: Cigarette exports from China increased to about 17 bn pieces valued at $224.2 mn in 2006. Most of the increase came from shipments to the relatively new markets. Exports to Slovenia quadrupled in 2006, reaching 1.27 bn pieces valued at $7.9 mn. The earlier boon for exports to United Arab Emirates faded as some of the final destinations for cigarettes from UAE transit trade began to make purchases directly from China, and Iran was a leading new customer in 2005, with purchases valued at $555,000. China’s cigarette exports to the UAE reached 3.9 bn pieces in 2003, valued at $21 mn. China’s cigarette exports to UAE declined a tenth in 2006 to 2,2 bn pieces valued at $19.6 mn. China’s exports of cigarettes to Saudi Arabia zoomed from an initial 9 mn pieces in 2005 to 257 mn pieces in 2006.
Hong Kong remained to top export market during 2002–06. China’s cigarette exports to Hong Kong increased 22.8% in 2006 to 4.65 mn pieces valued at $76.7 mn, and an average price of $33 cents per pack of 20, compared with 40.8 cents in 2005. China’s cigarette exports to Macau dropped a tenth in 2006 to 310 mn pieces.
Burma was a market for about 912 mn pieces from China in 2006—16% below 2005 shipments. China’s cigarette exports to Malaysia increased 21% in 2006 to nearly 1 bn pieces, but shipments to Singapore fell 39.4% to 553 mn pieces. Competition from Indonesia has affected China’s exports to markets in Southeast Asia. Yet, China’s cigarette exports to Indonesia rose 36% to 211 mn pieces in 2006. China’s cigarette exports to Vietnam rebounded 21.5% in 2006 to 192 mn pieces.
China’s cigarette exports to Japan increased 6.5% in 2006 to nearly 1 bn pieces. Competition for sales of imported cigarettes in Japan became more competitive recently as Germany and South Korea increased their share in a market where over 90% of the cigarettes had come from the United States during 2000–04. China’s cigarette exports to North Korea advanced 28% to 945 mn pieces.
China cigarette exports to the United States declined from 2.76 mn pieces in 2002 to a low of 111 mn pieces in 2006. Tourist centers like Hawaii are important markets for cigarettes from China. Exports of cigarettes from China to Canada declined a tenth to 382 mn pieces in 2006.
China has faced more competition from Hong Kong, Indonesia, and South Korea in the market for imported cigarettes in Asia. For a while in the late 1990’s it appeared that China’s cigarette exports might reach $1 bn. Then came greater competition from Indonesia, on top of the new cigarette operation in Hong Kong. China’s cigarette exports in might rise in value during 2007 beyond the $244 mn recorded in 2006 as sales of premium brands increase.
Cigarette Imports Remain Relatively Steady: China reported the clearance of 2.567 bn cigarettes through customs in 2004 and imports rose 4.4% to 2.679 bn in 2005. The value for China’s cigarette imports remained steady at $51.9 mn in 2005, compared with $51.2 mn in 2004. Brands made predominately from flue-cured tobacco account for most of the cigarette imports. The UK share of China’s cigarette imports declined from 44% in 2004 to about half that level by 2006. The Untied States accounted for about a fifth of the cigarettes clearing customs into China during 2003–05, and Hong Kong was listed as the third most important source. Most of the cigarettes of US origin arriving in China come through transit traders in Hong Kong. Many people from China go to spend a day shopping in Hong Kong. They return home in vans or trucks filled with consumer goods bought during the day of busy shopping. Small imports of cigarettes from Germany, Singapore, and Japan enter China.
Leaf Tobacco Exports Declined 8.8% in 2006: Exports of leaf tobacco from China declined 8.8% to 147,028 tons in 2006, compared with 2006 and that was a fourth below the peak shipments of 183,928 tons in 2003. The average price for China’s leaf tobacco exports increased 18.8% in 2006 to $1,958.85 per ton. Most of the exports consisted of flue-cured, although small quantities of dark tobacco went to markets in Southeast Asia.
China’s tobacco exports to Belgium increased 39.7% in 2006 to 25,710 tons. Traders in Antwerp distribute leaf tobacco to customers in other EU countries in addition to factories in Belgium. Shipments of leaf tobacco to Indonesia were up 16% to 19,794 tons in 2006, and exports to Philippines were steady at 13,030 tons. Leaf tobacco exports to Egypt declined 23% to 10,728 tons in 2006 – a level far below the 25,812 tons shipped to Eastern Tobacco Company in 2004.
China’s leaf tobacco exports to Russia declined from 31,085 tons in 2002 to 10,169 tons in 200, partly because of competition from Brazil. China’s tobacco exports to the UK dropped from 10,202 tons in 2002 to half that level by 2006. Exports to Germany increased 74% in 2006 to 7,323 tons. Exports of tobacco to Hong Kong increased 60.6% to 9,638 tons in 2006, where China has replaced the United States as a major supplier. China had wide gyrations for exports of leaf tobacco to Jordan from a peak of 6,529 tons in 2003 to a low of 724 tons in 2006. This was partly related by Jordan’s increase in cigarette output to provide greater deliveries to Iraq.