deaths annually. Yet, tobacco use kills around 3000 people in a day, amounting to more than

Known for its manufacturing-led growth, remarkable demographic dividend, and an austere One-Child policy, China is the largest producer and consumer of tobacco in the world. According to the World Health Organization, while there are more than 300 million smokers, about half of adult men smoke. It results in more than 700 million people exposed to second-hand smoke, causing 100,000 deaths annually. Yet, tobacco use kills around 3000 people in a day, amounting to more than 1 million people each year.
China, despite the rising health concern, is at the center of the largest tobacco industry in the world. The State Tobacco Monopoly Administration (STMA), along with its commercial arm China National Tobacco Corporation (CNTC), is a monopolistic-state-owned enterprise and the largest supplier of tobacco globally, yielding political and financial clout in the Chinese economy. The extent of this industry is such that the cigarette market alone generated US$226.3 billion worth of retail value in 2018. Moreover, China’s Tobacco Corporation captures 43.6% of the global cigarette market. (Euromonitor International, 2019)

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Although this industry does add to the prosperity of the Chinese economy, it has deteriorating effects on the health of their population. China is home to the world’s highest number of deaths caused by smoking — a large part of which are premature deaths — one million deaths annually. Cancer, cardiovascular diseases, and respiratory diseases are the three major causes of smoking-attributable deaths.
The extent of this problem furthers as expenditure on smoking disrupts the share of household expenditure on food, education, clothing, and housing for the non-smokers as well as smokers. Spending on cigarettes and tobacco is extensive as these goods become habitual, leading to health concerns and an eventual increase in medical expenditure. As microeconomic theory puts it aptly, the elasticity of demand for cigarettes, and smoking, is inelastic and does not alter with a price change. This behavior, in effect, tends to have worse outcomes for rural households, as they spend a larger proportion of their income on the consumption of cigarettes. In part, this is a reason why taxation might be ineffective in reducing the demand for cigarettes.
The extensive smoking habits have become a socio-cultural aspect of Chinese society. One could notice every third man smoking a cigarette or a cigar if one passes by a lane in any nook and corner in China. And as everyone is smoking, the next generation is encouraged to follow in their footsteps. Children, from the age of 15, as they are on the verge of adulthood, start picking up this habit. And it sticks with them as they age. With a rising aging population, and more so a smoking aged population, this prolonged health concern needs redressal.
In 2018, the Chinese consumed 2.4 trillion cigarette sticks; the rest of the world consumed a total of 2.25 trillion cigarettes.
Measures, such as medical treatment costs or direct costs and low productivity due to mortality or indirect costs, provide estimates of the health burdens associated with smoking. In the year 2000, the economic costs of smoking were $25.43 per smoker above the age of 35, amounting to $5.0 billion in total. Out of this, $1.7 billion were direct costs, whereas $3.3 billion were indirect costs. (Sung, H. Y. et al., 2006)
The costs are high, but the economy is profiting from the production of cigarettes. In 2018, China exported $722 million worth of cigarettes, a figure which was $248 million a decade ago. The tobacco industry employs about 60 million people, including tobacco farmers, cigarette retailers, and manufacturers. A ban or a tax on tobacco products or even selling will lead to massive unemployment and revenue losses from domestic as well as foreign markets.
Taxing the tobacco leaf farmers has had intractable results. As the tobacco leaf tax acts as a source of local tax revenue, it led to incentivize local authorities to increase its production. Results were oversupply of tobacco leaf and a lower tobacco leaf price, leading to lower cigarette prices and a higher smoking population.
As the Chinese tobacco company is a state-owned enterprise, it forms and follows the policies of the government — from allocating tobacco production quotas among the provinces to pricing and managing the international trade and tariffs. In a recent piece from the Financial Times, it was conjectured upon that China’s tobacco company aims to increase its reach and become a transnational company along with leading tobacco brands, as to compete with its counterparts such as Philip Morris International and British American Tobacco.
Although this would mean an even more flourishing economic growth, it will also add up to the monopolistic influence and power the China National Tobacco Corporation has in the Chinese economy. It is the role of the state to ensure that smoking does not become chronic health haphazard or a cultural norm among the Chinese. However, the interventions were piecemeal and did not have the desired effect.
In August of 2005, China approved the World Health Organization Framework Convention on Tobacco Control (FCTC), which went into effect on January 9, 2006. It further led to a series of measures such as smoke-free places, advertising, warnings on packaging and labeling, and taxation to curb smoking among the population. One of the problems with this approach was the lack of empathy for the smoking population. There were, without a doubt, warning messages on cigarette packs, but many of them were in English. To the Chinese, English is a foreign language, a secondary language making the warning redundant.
Yet the question that arises here is whether such incentives — warning, posters, penalties, and taxes do influence smokers to quit cigarettes? If yes, why these methods seem to be ineffective, and what could the authorities do to employ better interventions and policies?
This article was originally published on What-if Economics. View and subscribe to my newsletter to get insights right in your mailbox.
A follow-up article will arrive next week explaining the possible solutions to the questions posed above.