Belt and Road Initiative: From China to the World
By TobaccoChina Online
China’s tobacco industry looks forward to enjoying favorable conditions in its drive to “go global,” due to the implementation of the Silk Road Economic Belt and the 21st Century Maritime Silk Road, the so-called “Belt and Road” initiative.
On May 14-15, the Belt and Road forum for international cooperation was held in Beijing with the participation of 29 foreign heads of state or government and representatives from more than 130 countries and 70 international organizations. The forum was a major international gathering for all parties concerned to consult on joint construction of the project, and served as an important platform for strengthening cooperation and coordinating development strategies.
Proposed by Chinese President Xi Jinping in 2013, the Belt and Road initiative aims to build trade and infrastructure networks connecting Asia with Europe and Africa on and beyond the ancient Silk Road routes. It comprises the Silk Road Economic Belt and the 21st Century Maritime Silk Road.
For China’s tobacco industry, construction of the Belt and Road will be conducive to building an interest-sharing value chain, improving the distribution of tobacco resources in China, and forming a mutually beneficial structure and cooperation network. More significantly, it will promote the development of new channels to realize export-oriented growth and systemic transformation by means of internationalized construction, and will provide the industry with a new path leading to global development.
Development opportunity brought about by the Belt and Road Initiative
The countries and regions on the Belt and Road account for 63% of the global population, which means a vast market to be tapped by China’s tobacco industry, helping to solve the problem of possible surplus of tobacco production capacity. In the long run, it is also of great significance to the industry’s international expansion.
Ling Chengxing, director-general of the State Tobacco Monopoly Administration (STMA) said that a requirement is, “To develop international markets that represents the general trend of development of the tobacco industry, and is an inevitable choice and indispensable process for it,” addressing a meeting on international market development by the tobacco industry held in Beijing on December 19, 2013. On many other occasions, STMA’s chief also mentioned the development of international markets, emphasizing that, “The tobacco industry needs to take realization of the strategic planning for the Belt and Road as an opportunity, build up confidence, seize favorable chances, make a good use of policies, and exert all efforts to forge ahead. It needs to further implement the development strategy for ‘going global’, and have the great ambition of catching up with the top three transnational tobacco companies, the great ambition of catching up with the number one transnational tobacco machinery manufacturer, and the great ambition of catching up with large transnational raw materials manufacturing groups.”
China National Tobacco Corporation (CNTC) established its import-export arm shortly after its incorporation, and, by means of export trade, has managed to establish factories in Southeast Asia, cooperate with transnational tobacco giants in launching cigarette production under license and strategic cooperation, and launch industrial operations of leaf tobacco production in Zimbabwe and other regions, etc. By the end of 2015, China’s tobacco industry boasted more than 30 overseas cigarette making and leaf tobacco producing enterprises, accumulating valuable experience in developing international markets.
Since the 1990s, the four leading transnational tobacco manufacturers, by means of mergers and acquisitions, realized global expansion and distribution in regions around the world except China, and have so far taken a 70% stake in the global cigarette market. Yet, around the world, there are still cigarette markets to the tune of 22 million cases (110 billion cigarettes) yet to be developed, and there are upstream and downstream markets in the industrial chain that need to be improved, in addition to rapid development of new types of tobacco products. All such developments mean potential favorable market opportunities for the Chinese tobacco industry to “go global”.
China’s global pioneers
China Tobacco Anhui Industrial Co., Ltd. – Eyeing the global market. Well before the Belt and Road initiative, China Tobacco Anhui Industrial (CT Anhui) saw the significance for its strategy of targeting the global market. In 2005, the project of incorporating China Tobacco International Europe Company (CTIEC) was officially launched in Romania, and CT Anhui became one of the pioneers in “going global”. In April 2006, the Chinese Ministry of Commerce approved increasing investment in Baofeng Tobacco Company in which CT Anhui holds a controlling stake. After the process of increasing investment and shares, the company was renamed CTIEC, and CT Anhui took a major step in China’s tobacco industry entering the international stage.
In 2007, supported by great promotion efforts by STMA, CTIEC smoothly completed a technological transformation which was intended to establish a production base for China Tobacco in Europe. As a result, the level of equipment and the production and manufacturing capacity of CTIEC have both been significantly promoted. Besides producing Dubliss cigarettes, a brand owned by CTIEC itself, the company also produces RGD and Harmony cigarettes, which are brands owned by China Tobacco Philip Morris International (CTFMI). Soon, CTIEC determined the direction needed for the development of the enterprise and its competitive brands, with priority given to developing Dubliss.
Taking advantage of Philip Morris’ local marketing channels, the first batch of Dubliss was well received by local consumers. In Romania alone, the monthly supply of Dubliss to the local market can reach up to 2,000 boxes (20 million cigarettes).
In 2013, taking advantage of the development momentum brought about by the Belt and Road initiative, CTIEC accelerated its expansion into Africa and the Middle East.
In 2015, CTIEC, seizing opportunities brought about by China’s implementation of the Belt and Road initiative, exerted all efforts to quicken its pace in “going global”. In that year, the group increased its investment of US$25.3 million in the project. Presently, CTIEC is vigorously developing markets in Africa, the Caucasus region, the Balkan region, Serbia, Montenegro, Croatia, Slovenia, Romania, Moldova, Ukraine, and parts of Turkey.
China Tobacco Guangdong Industrial Co., Ltd. – Chinese flavor for global sharing. Under the auspices of the STMA, China Tobacco Guangdong Industrial Co., Ltd. (CT Guangdong), Tianli International Economic and Trade Co., Ltd. (Tianli), and British American Tobacco China jointly invested in incorporating China Tobacco British American Tobacco International Co., Ltd. (CTBAT). On August 28, 2013, CTBAT was officially inaugurated and put into operation in Hong Kong as a joint venture.
After conducting a comprehensive market survey, CTBAT swiftly formulated a strategy to develop international markets with the Double Happiness cigarette brand, and set the target of turning the brand into the number one Chinese cigarette brand universally recognized in international markets, with the aim of possessing global distributors and loyal consumer groups in both developing and developed countries.
According to the agreement on investment in the joint venture, CTBAT will possess and manage the Double Happiness cigarette brand in markets outside China. Meanwhile, CT Guangdong will present to the market a new international version of the Double Happiness under the theme of “Chinese flavor for global sharing”, which means that the process of internationalization of the Double Happiness brand will be significantly accelerated.
China Tobacco Guizhou Industrial Co., Ltd. A late starter focusing on medium- and high-grade tobacco products. In September 2014, Guojiuxiang (the national liquor aroma), a leading competitive cigarette brand of China Tobacco Guizhou Industrial Co., Ltd. (CT Guizhou) entered duty-free shops in international markets. In little more than a year, the sales volume and the fine reputation of Guijiuxiang both kept increasing. At duty-free shops, a carton of Guojiuxiang 30 sells for HK$1,600 (US$205.00). Considered high-grade cigarettes, the prices of Guijiuxiang have remained very strong.
At the time launching its drive to develop international markets, CT Guizhou defined its guidelines for developing international markets for medium- and high-grade tobacco products by making international markets understand that can develop competitive products and brands, an example of which is the high value of Guiyan, its existing leading competitive cigarette brand.
More Chinese brands “going global”
On December 21, 2016, General Group of China Tobacco Industrial Shandong Industrial Co., Ltd. and China Tobacco Shandong Import-Export Co., Ltd. signed a framework agreement on cooperation in export, which provides for the export of more than 30 million generic filter tips, mint flavored filter tips with lines, and bursting beads filter tips, realizing the start of exporting filter tips manufactured by the provincial tobacco industry. This development means that General Group has taken yet another substantial step in developing international markets in implementation of the “going global” strategies of both STMA and CT Shandong.
Last December 18, the first shipment of export-oriented Jinsheng (Porcelain) brand cigarettes manufactured by China Tobacco Jiangxi Industrial Co., Ltd. arrived in Yantian Port in Shenzhen City, from which the shipment will proceed to Southeast Asian countries including Singapore, taking Jiangxi province’s tobacco industry’s first step towards internationalization.
On December 27, 2016, China Tobacco Liaoning Import-Export Co., Ltd. (CT Liaoning IE) held a ceremony in Dalian to commence the export of the Great Hall of the People (Ancient Porcelain 8mg) cigarettes to Madagascar, which was attended by representatives from CT Liaoning IE, Madagascar Shenda Company, and Hongta Liaoning Co., Ltd. -- a subsidiary of Hongta Group. Following the ceremony, the first shipment of 500 boxes (5 million cigarettes) of the Great Hall of the People brand was dispatched to Madagascar.
The aforesaid efforts made by China’s tobacco industry prove that it has always been striving to “go global”. Presently, the domestic tobacco market is saturated, how to “go global” and realize development of international markets is what deserves the greatest attention. In this respect, the tobacco industry of China, however, still seriously lacks pertinent ideas, experience, know-how, and effective measures. Under the Belt and Road initiative, the endeavor of the industry to “go global” will be of even greater significance, while global markets will be able to offer China greater room for growth.