R.J. Reynolds Expanding in China
R.J. Reynolds Industries Inc., already in the midst of a major modernization program in the United States, also is expanding its foothold in China--whose 250 million smokers make it the world’s largest market.
Since 1981, Reynolds has cooperated with the Xiamen cigarette company to produce Camel filters for tourist outlets inside China, the first American brand produced here. Camels were a popular import before the 1949 takeover by the Communists.
Domestically Sold Under a new agreement signed in 1984, the American company launched a $20-million joint venture for a modern factory in the Xiamen special economic zone, where it will manufacture Camel, Winston, More, Salem Menthol and a joint brand of cigarettes.
A third of the production will be sold domestically in China, a third at tourist foreign-exchange outlets and a third will be exported, said Sun Anmin, deputy director of the Xiamen factory.
Already under construction on Xiamen Island in southeastern China opposite Taiwan, the plant is due to open late this year with a capacity of 2.5 billion cigarettes a year.
China is the world’s largest tobacco market, with 1,000 brands of cigarettes consumed at an average rate of 3 1/2 packs a week by each smoker, who together account for a quarter of the nation’s 1 billion people.
So why allow Reynolds into the market?
“It doesn’t matter. China is a very big market and very big consumer of tobacco,” Sun said. “Our agreement is based on mutual benefit. We get modern equipment, technology and management from Reynolds, and they, of course, want to sell their brands in China.”
A carton of Camel filters sells here for about 16 yuan, or the equivalent of $5.70. That is the cheapest Western cigarette, but twice the cost of Chinese filters.
Lester W. Pullen, president of RJR Tobacco International, has said the project gives Reynolds the lead “in a market where more than 950 billion cigarettes are sold.”
Under the 18-year contract, Reynolds is supplying $10-million worth of equipment and Xiamen is providing a 440,000-square-foot factory, also worth $10 million.
Twice Normal Pay The venture, known as the Hua-Mei (Chinese-American) company, will have about 300 employees earning some 200 yuan ($70) a month, more than twice normal pay in Xiamen, Sun said.
Workers will be hired on contracts, unlike the job-for-life system prevailing at the antiquated old plant where the air is polluted by filter-paper fumes, tobacco is heaped on the dirty floor and machines constantly break down.
“We very seldom fire a worker, even if he’s not capable. We guarantee medical care, housing, everything. When they retire we pay 65% of their wage until they die,” Sun said.
The old plant has 1,000 workers and an annual capacity of 600 million cigarettes, with one production line for Camels, but most are devoted to Chinese brands such as Amoy filters and Egret Island. Reynolds sent in $500,000 worth of cigarette-making equipment.
The new plant will blend and process the tobacco, a complicated step not possible in the old factory, Sun said.
The name for the joint brand has not been selected, but Reynolds is considering the use of Chinese air-cured burley tobacco, unlike the flue-cured Virginia variety it normally selects.
“We’ve sent many samples for their analysis,” Sun said.
