Tobacco Asia

Volume 20, Number 2

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Page 47 of 67

48 tobaccoasia / Issue 2, 2016 May / June) By Tobacco China Online The "Long Winter" of China Tobacco's Discontent The beginning of each year is generally a "hot" period for the Chinese tobacco industry as sales surge. But, in early 2016, no such trend was ob- served. On the contrary, the market for tobacco products and even competitive cigarette brands were in a state of depression and experienced weak sales. In January and February 2016, the ciga- rette sales volume in China dropped significantly year-on-year, with inventories held the industry re- maining excessively high, and with both taxes and profits generated from tobacco products falling noticeably from the same period in 2015. These factors have raised a red flag for the Chinese to- bacco industry. In the past, all Chinese tobacco manufactur- ers were optimistic and confident in setting tar- gets for annual business development. As long as they worked hard enough, they would definitely fulfill or overshoot their annual cigarette produc- tion and sales quotas issued by the State Tobacco Monopoly Administration (STMA) – the regulator of the tobacco industry in China. Some tobacco manufacturers even managed to limit cigarette production or restrict sales of their own accord at the end of the year, in order to leave room for development in the following year. But in early 2016, many tobacco manufacturers in the country found themselves in a dilemma: if they set a low annual development target, it would mean that they were dragging down the entire tobacco in- dustry. But if they set a high target, it would mean that they would be unable to meet these targets. The tobacco industry in China may have entered unprecedented hard times in operation and business development, characterized by sales decline, excessive inventories, low tax generation, low profits, and hasty adoption of regulatory measures. In face of the harsh situation of decline in both tax payment and profit making and increase of production costs, the tobacco industry has urged enterprises to further promote their management to higher levels, cut costs and increase efficiency by means of lean management.

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