Issue link: https://read.dmtmag.com/i/622093
42 tobaccoasia / Issue 5, 2015December/January) In comparison, STMA's decision to separate CTCI into two independent entities is practically required, first of all, by the increasing growth of the annual cigarette production capacity in both Sichuan and Chongqing, secondly, by the separate administration of Sichuan and Chongqing, and thirdly, by further deepening of reform of man- agement by CTCI itself. This change is just a reflection of the "giv- ing priority to capital management" requirement prescribed by the Guiding Opinions in terms of improving the system of state-owned asset man- agement. The principle was put in place in order to promote a shift of functions of state-owned assets regulation institutions, reform the system of authorized operation of state-owned assets, promote effective flow of state-owned capital, improve distribution of state-owned capital, and promote centralized regulation over profit-mak- ing state-owned assets. In discussing the course of the reform fol- lowing the CTCI split, tobacco industry sources believe that it will enable Sichuan Province and Chongqing City to each have an independent op- erator of the manufacturing sector, and that the newly established entities will strive to implement the reform of their management and rectify the relations of their assets. Experts also say it is very likely that both provinces will seek association with other powerful large enterprises. So far, the enterprises that have established production coop- eration with CTCI include those based in Yunnan, Hubei, Zhejiang, and Hunan provinces. After the separation, it will be inevitable for both the newly established CTSI and CTCI to in- dependently face serious challenges brought about by a general slowdown in growth on the part of the entire tobacco industry. Meanwhile, they will have to bear risks of internal friction and a series of costs to newly arise. In future, as far as the cost of hardware is concerned, as well as purchase some equipment. As far as the cost of software is concerned, both will have to give much con- sideration to expanding their marketing channels, introducing human resources, increasing the influ- ence of their competitive brands, and improving their management, etc. However, in the long run, the separation seems to be more beneficial to the development of the tobacco industry of Sichuan, as there exists vast potential of the local market yet to be tapped. If Sichuan can swiftly rectify the relations of its management and assets, develop the local market and, at the same time, vigorously develop markets in other Chinese regions, it can fully expect to achieve rapid development in the very near future. In comparison, following the separation, the chal- lenges faced by the tobacco industry of Chongqing will outweigh the advantages. Therefore, it must step up efforts to develop domestic markets in order to provide guarantees for future sustainable development. Only by doing so, can it stabilize its position in the market and seek greater develop- ment in the future. Presently, it remains unknown how CTCI will divide up its relevant brands, assets, human re- sources, etc in the separation. However, under the megatrend of deepening reform by the tobacco in- dustry, it is undoubtable that the separation of the company will be playing a model, guiding role in eliminating regional trade monopoly and promot- ing market-oriented reform. CTYI integrates Non-Tobacco Operations In stepping up the reform of their state-run enter- prises, the tobacco industries of southwest China have made rapid progress and have virtually taken the lead. On October 16 – just four days after STMA announced the decision to separate CTCI, Yunnan Hongta Group Co., Ltd. – the subsidiary wholly owned by Hongta Tobacco Group in Yun- nan – announced that it would merge into Yunnan Hehe (Group) Co., Ltd. (YHGC) This develop- ment signifies a smooth completion of the process of integration of the non-tobacco businesses oper- ated by tobacco manufacturers under CTYI. As far as YHGC is concerned, it is a unified platform for managing investment in business di- versification jointly incorporated in February 2015 by Hongta Tobacco Group (HTG) with a con- trolling stake of 75%, HongyunHonghe Tobacco Group (HHTG) with 13% of the shares and CTYI with 12% of the shares, in efforts to integrate proj- ects of non-tobacco businesses in the wake of the launch of a CTYI reform campaign leading to "two integrations and two unifications". The "two unifications" refers to the merger of management by CTYI over the businesses of marketing on the part of its affiliated HTG and HHTG and the merger of the r&d of the two groups. Meanwhile, "two integrations" refers to the integration of the existing cigarette brands and integration of the existing enterprises. The The building of Hongta Tobacco Group