{"id":1428,"date":"2019-10-12T23:41:55","date_gmt":"2019-10-12T23:41:55","guid":{"rendered":"https:\/\/blogs.bmj.com\/tc\/?p=1428"},"modified":"2019-10-12T23:41:55","modified_gmt":"2019-10-12T23:41:55","slug":"china-ctis-quiet-expansion-strategy-should-be-a-concern-for-global-public-health","status":"publish","type":"post","link":"https:\/\/blogs.bmj.com\/tc\/2019\/10\/12\/china-ctis-quiet-expansion-strategy-should-be-a-concern-for-global-public-health\/","title":{"rendered":"China: CTI\u2019s quiet expansion strategy should be a concern for global public health"},"content":{"rendered":"

Ross MacKenzie, Jennifer Fang, Julia Smith<\/strong><\/p>\n

In July this year, China Tobacco International (CTI) Hong Kong, the international arm of the China National Tobacco Corporation (CNTC), launched into the stock market with an initial public offering (IPO). Outside of the financial media, the IPO attracted relatively little attention. However, the offering has implications far beyond the stock market. As the goal of the IPO was to finance market expansion in CNTC target markets, and establish strategic collaborations with other cigarette companies<\/a>, its significance for tobacco control and public health should not be underestimated.<\/p>\n

CNTC is the world\u2019s largest cigarette manufacturer, accounting for 43.0% of all cigarettes sold globally in 2018<\/a>. \u00a0While its sales are almost entirely confined to the domestic Chinese market of some 300 million smokers, recent analyses<\/a> indicate that the corporation is looking to move beyond China\u2019s borders<\/a> (see also here<\/a> and here<\/a>). The IPO is further evidence of the CNTC\u2019s international growth strategies.<\/p>\n

Established in 2004, CTI Hong Kong played a relatively minor role within the CNTC until a major reorganisation in 2018 redefined its operations and responsibilities. Described as the \u201cdesignated offshore platform of China Tobacco International<\/a> of capital markets and operation and international business expansion,\u201d CTI Hong Kong\u2019s responsibilities cover four main areas<\/a>: i) tobacco leaf export (excluding Zimbabwe), in coordination with affiliates CTI Brazil, CTI Argentina and CTI North America (all wholly-owned by the CNTC) and with China Brasil Tabacos Exportadora<\/em>; ii) tobacco leaf export to South-East Asia, Hong Kong, Macau and Taiwan; iii) cigarette export to Hong Kong and Macao, as well as duty-free sales in Thailand and Singapore; and iv) global sales of novel tobacco products, including heated tobacco devices.<\/p>\n

Outcome of the IPO <\/strong>
\n<\/em>The announcement of the IPO in January 2019 met with little enthusiasm from analysts<\/a> who emphasised that the offering was not <\/em>an opportunity<\/a> to purchase shares in CNTC or access its lucrative domestic cigarette business<\/a>. \u00a0Rather, the CTI Hong Kong offering was aimed at raising approximately US$ 100 million to fund new investments and acquisitions<\/a> in response to increasing regulation and declining smoking rates in China<\/a>.\u00a0 This strategy of leveraging<\/p>\n

CNTC\u2019s reputation to raise funds presented should, according to one observer, have been \u201ca bright red flag for investors.\u201d<\/a> CTI (HK)\u2019s substantial drop in revenue and profit from 2017 to 2018<\/a>, and the impact of the US-China trade war on the global economy were also cited as reasons for investors to be cautious<\/a>.<\/p>\n

Described by one analyst<\/a> as \u201ca litmus test of investors’ appetite for tobacco stocks as\u00a0global cigarette demand is forecast to shrink amid rising health concerns,\u201d strong investor reaction saw the initial share price more than quadruple by September<\/a>, and enabled the company to raise just under USD 100 million<\/a>. Investor demand was driven<\/a> by favourable timing, in terms of other available investment options, and the rare opportunity of buying into China\u2019s tobacco industry, even in the arm\u2019s-length form of CTI Hong Kong.<\/p>\n

Implications for tobacco control<\/strong><\/p>\n

The success of the IPO has two key implications for global tobacco control. First, the share offering underlines both CNTC concerns about the future of its domestic sales, and its consequent commitment to international expansion. Leading Chinese economist Song Qinghui remarked<\/a> that CTI (HK)\u2019s IPO may be an important step in CNTC\u2019s globalization. Revenue raised<\/a> will to be used to expand CNTC\u2019s<\/a> global distribution channels, mergers and acquisitions on the international market, with a focus on luxury tobacco products and new nicotine delivery devices.<\/p>\n

Second, revenue derived from the IPO will also be used to finance CTI Hong Kong\u2019s management, including exclusive distribution rights to both international markets and Chinese retailers and wholesalers, of all new nicotine delivery systems developed by Chinese companies. To date, this area has been dominated<\/a> by shipment of heated tobacco \u00a0systems to Asia. There are already a number of heated tobacco devices available in China, and intensive R&D efforts by CTI Hong Kong are expected to expand the product range<\/a> in the near future. This focus on heated tobacco products may change however, as Chinese e-cigarette manufacturers have recently\u00a0 obtained millions of dollars in venture capital<\/a> investment to produce a range of products including Juul-like vaporisers<\/a>. Given increasing alarm regarding uptake of new nicotine delivery systems by adolescents in many countries and growing evidence of associated health risks<\/a>, CTI Hong Kong\u2019s move into this sector is cause for concern.<\/p>\n

CNTC\u2019s international portfolio<\/a> now includes a growing network of overseas operations that include tobacco leaf growing and procurement, manufacturing, distribution, and machinery suppliers overseen by CTI Hong Kong. \u00a0The corporation\u2019s quiet and patient expansion strategy prompts fewer headlines than high profile mergers and takeovers, but is a crucial issue in analysis of tobacco industry operations and implications for public health.<\/p>\n

The authors are researchers with the Global Tobacco Control Research Programme, Faculty of Health Sciences, Simon Fraser University, Canada. Jennifer Fang and Julia Smith are\u00a0supported by the SSHRC grant 430-2018-00736.<\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Ross MacKenzie, Jennifer Fang, Julia Smith In July this year, China Tobacco International (CTI) Hong Kong, the international arm of the China National Tobacco Corporation (CNTC), launched into the stock market with an initial public offering (IPO). Outside of the financial media, the IPO attracted relatively little attention. However, the offering has implications far beyond […]<\/p>\n

Read More…<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6842,2149,2143,6825],"tags":[],"class_list":["post-1428","post","type-post","status-publish","format-standard","hentry","category-china","category-e-cigarettes","category-tobacco-industry","category-trade"],"yoast_head":"\nChina: CTI\u2019s quiet expansion strategy should be a concern for global public health - Blog - Tobacco Control<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/blogs.bmj.com\/tc\/2019\/10\/12\/china-ctis-quiet-expansion-strategy-should-be-a-concern-for-global-public-health\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"China: CTI\u2019s quiet expansion strategy should be a concern for global public health - Blog - Tobacco Control\" \/>\n<meta property=\"og:description\" content=\"Ross MacKenzie, Jennifer Fang, Julia Smith In July this year, China Tobacco International (CTI) Hong Kong, the international arm of the China National Tobacco Corporation (CNTC), launched into the stock market with an initial public offering (IPO). 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