Bad Habit, Good Money in China

Yang Zhengyun is very proud of the crop he grows in the rich red soil here in south China’s Yunnan province. “We raise the best in the whole country,” said Yang, who had brought his harvest to a farmer’s bazaar on his flatbed motorbike, joining hundreds of others clamoring to sell the product that is at the heart of the local economy: tobacco.

In a country where nearly two-thirds of all men smoke and offering a cigarette amounts to a common form of greeting, this hilly province provides a particularly vivid illustration of how dominant a role tobacco plays in China’s financial system -- and how difficult it may be for the government to wean itself from a huge source of revenue, even one that is a known killer.

Taxes and profits from the official monopoly on tobacco provide about 10% of the central government’s revenue in Beijing, and as much as 70% in some of the outlying towns and provinces where it is grown.

While the government has launched some programs in recent years to warn people about the dangers of smoking, there is little indication that these efforts have had much of an impact. With about a fifth of the world’s population, China consumes nearly one-third of the world’s cigarettes.

Here in rural Yunnan, some people dismiss the threats posed by cigarettes, instead defending them as a way to ward off stress, mosquitoes or the common cold -- or all three. Just as fundamentally, residents in the places where tobacco is grown defend it as their economic lifeblood.

“Let’s face it, our farmers can do best with tobacco,” Zhu Rui, the Communist Party leader of Luhe township here, said as he puffed on a local brand and oversaw the farmers’ market, where men brought huge fronds of yellow-brown tobacco leaves for an intricate grading system that determined how much they would receive. “We know there will be pressure to grow other things, but I hope we don’t have to switch.”

The tobacco industry is centrally controlled, with production quotas and prices for the most part set by Beijing. Cigarettes in China cost as little as 12 cents for a package of 20, but more desirable brands can cost a dollar or more, ultimately providing a much greater margin for taxes and government revenue than food crops.

In the first six months of this year, the tobacco industry generated $10.5 billion in taxes and profits, according to the State Tobacco Monopoly Administration -- an increase of 13% from the same period in 2002.

For the Chinese government, though, running -- and relying on -- such a vast network of cigarette production poses an obvious dilemma, since the roughly 1.7 trillion cigarettes that the Chinese smoke annually impose a gargantuan health and productivity cost on the nation.

“The government is worried about the short-run impact” of any major drop in tobacco demand, said Teh-wei Hu, a professor of health economics at UC Berkeley, who has studied China’s tobacco system extensively and met with officials here to urge higher taxes on tobacco as a way of discouraging smoking. “They certainly know tobacco is harmful, but they say, well, we have our immediate problem to take care of, and that’s employment.”

About 700,000 people in China die annually from tobacco-related illnesses, the World Health Organization estimates.

In one of the most comprehensive studies done, scientists at the University of Hong Kong and Oxford University concluded two years ago that unless major steps were taken to reduce smoking rates in China, tobacco-related diseases eventually would account for one in three of all premature deaths among Chinese men.

Richard Peto, an Oxford professor of medical statistics and epidemiology and an author of the study, said that one of the main problems in China is that substantial numbers of people do not fully believe health warnings about tobacco.

Smoking is ingrained in the culture. Chinese icons such as Mao Tse-tung and Deng Xiaoping were frequently seen with cigarettes in hand. Though today’s leaders are generally not seen smoking in public, the influence of such earlier images seems to linger.

“Every man I know smokes -- it’s just the custom,” said Wang Kaibao, a 50-year-old itinerant worker in Anning, a steel town in Yunnan province. “It’s not a matter of whether it’s good or bad, it’s just kind of a fact. It’s a part of life here.”

At the tobacco market, farmer Yang, 36, waved a lighted cigarette expressively as he spoke about his 15 years growing tobacco. He said he was convinced it was the most lucrative crop he could grow.

“I could plant two fields of rice,” he said, “and I’d still make less than if I used half that much land for tobacco.”

Needing to support his parents, his wife and two sons, Yang said he is leery of experimenting with other less lucrative crops. Like many other tobacco farmers here, he said he doubts that health warnings will cut into business much.

“Even if people started smoking less, there’d still be a demand for quality,” he explained, “and that’s what we grow -- quality tobacco.”

Officials in Yunnan province, who said 56% of their provincial revenue came from tobacco last year, do not dispute the farmers’ calculations that the crop remains their most reliable source of income.

They say they are struggling to devise economic alternatives for the province in the event that smoking rates decline -- which most seem to expect will happen eventually.

China also is scheduled in the coming years, under world trade agreements, to lower steep tariffs and other restrictions imposed on foreign cigarettes, another move that could cut demand for tobacco from here. Foreign cigarettes are available in China but are highly taxed: The monopoly administration says they account for about 2% to 3% of all legal sales, with many more being smuggled into the country.

“We feel the pressure, we know we have to do something,” said Zhou Fajun, the vice mayor for the tobacco industry in Chuxiong, an industrial city of 2 million about 45 miles west of the provincial capital, Kunming.

“But our main income resource is from people smoking cigarettes,” continued Zhou, who himself was smoking the Chuxiong brand during an interview and tour of tobacco fields and plants here.

Echoing what the farmers tend to say, he added: “We do have some hope that even if fewer people smoke, there still would be a great demand for Yunnan tobacco. So maybe we can still grow as much.”

Yang Anli, a director with the Yunnan planning commission, said tobacco still provides by far the most revenue of any industry for the provincial government’s coffers.

She said the government hoped to build up four other “pillar industries” in Yunnan -- tourism, electricity generation, pharmaceuticals and phosphorous chemicals -- in anticipation that tobacco revenues will drop in coming years.

Smoking remains largely a man’s habit in China, with only about 5% to 6% of Chinese women describing themselves as smokers in national surveys. However, those surveys also indicate that smoking is growing in popularity among younger, urban Chinese women.

Peto, the Oxford professor, said that even among officials who acknowledge the damage it does, tobacco is widely seen as such an engine of the economy that they are reluctant to champion any major campaigns to curb smoking rates.

“There’s a fear among Chinese officials and farmers alike that if tobacco suddenly disappeared tomorrow, they wouldn’t know what to do with themselves,” Peto said. “That’s obviously not going to happen, though. People aren’t going to stop smoking all at once. It is a question of working over years to reverse a trend.”

Gan Xingfa, vice general secretary of the Shanghai branch of the smoking and health association, said that reducing the amount of tobacco consumed in China will be a slow, “step-by-step” process.

“Of course, tobacco companies and the health departments have different ideas about all this, because the companies are worried about economic losses,” Gan said. “The two sides need to negotiate some sort of timetable.”

Chinese cigarette packages do carry a general warning that smoking is a health hazard, though critics say the warning should be in larger characters and much more explicit. While tobacco advertising and promotion is generally banned, both domestic and foreign manufacturers have found loopholes around the provisions, such as sponsoring sporting events.

The amount of money spent on tobacco education campaigns in China remains very small.

The main government-funded anti-smoking group, the Beijing-based Chinese Assn. on Smoking and Health, has an annual budget of about $61,000.

“It’s far less than enough for what we need to do,” said Zhang Yifang, vice chairman of the agency in Beijing. “It’s basically really hard to conduct our work.”

Here in Chuxiong and the surrounding countryside, signs of tobacco’s dominant role in the economy are everywhere. The state-run tobacco companies either own or are major investors in local hotels, apartment complexes, radio and television stations, hydroelectric plants and an expressway.

At the giant Chuxiong Tobacco Factory, where 3,100 workers oversee machines that chop and cure the plant, then ship it to another factory for production of cigarettes, some officials acknowledged that tobacco was harmful, but said they were nonetheless proud to work at the factory.

“This is a headache for me, but I’d like to address that question,” said the deputy director, Huang Wenyong.

“We all know that smoking can be bad, but we are trying to minimize the harm -- we are always researching that issue. We think our workers do have excellent safety conditions, and we are involved in a lot of charity programs.” Huang ticked off a number, including a river restoration project and school reconstruction, and added: “To do charity, you must have an economic basis.”

Among many of the farmers at the weekly market, however, the issue of growing tobacco was straightforward and purely economic. None seemed to consider themselves all that rich -- but at 65 cents per pound for the day’s average-grade leaf, growing tobacco worked out better than other farming ventures, they said.

“I’ve tried growing rice, I’ve raised silkworms,” said 52-year-old Xu Yongliang, dressed in a green field jacket and bearing 143 pounds for the day’s sale. “I’ve tried all kinds of things.”

But gesturing toward the big chalkboard where the day’s prices and grades were written down, Xu said: “It’s more profitable to grow tobacco. That’s what I’ve always found. I can’t tell you why, but it is. If that changed, we’d probably grow something else. But now, we grow tobacco.”