Effects And Evolution: A Study On The Tobacco Monopoly Systems In China

The government monopoly and administration system of tobacco in China has been graduallyestablished since1980s, under the instructions of ’unified administration, vertical management, andmonopoly production and sales’. It has been making important contributions to the increase of nationalfiscal revenue, with tobacco related profits and taxes increased around70times in the last30years,comprising a great proportion of the national fiscal revenue. However, revolutionary changes occurredduring the establishment and implementation of the system. It was a planned economic that the tobaccomonopoly system had been designed for, which bring the tobacco industry and policy makers of today animportant question of how to effectively combine the tobacco monopoly with the present market economy.With increasing number of countries abolished tobacco monopoly, the future trend of tobaccomonopoly and administration system in China is drawing widespread attentions.This is especially true afterthe accession of China to the WTO, which removed tariff and non-tariff barriers on the import and madetobacco market in China more open and competitive. As the largest cigarette consumption market in theworld, China is by nature the target market of major international tobacco companies, which meansdomestic tobacco companies are facing strong competitions.Also there are issues existed within the tobacco monopoly administration system which hinderedthe development of the tobacco industry. One serious issue is the local protectionism, caused by the unclearand mixed roles of government in tobacco enterprises. As a result, the designed national-wide monopoly issubstituted by local monopoly. What is more, government monopoly is not conductive to the improvementof overall competitiveness of tobacco industry, for it is a major hindrance to the formation of scaleeconomics among tobacco enterprises, and limited the development of those with competitive advantages.This paper uses system evolution theory to explain the historical evolution of tobacco monopolysystems in China, examined the implementation background of the present system, and analysed its systemeffects based on various data sources of tables and diagrams. Guidances on possible tobacco monopolyreform in this country are also provided, which are based on the analysis of systems evolutions in other countries, aiming at issues existed within the system and challenges faced by tobacco industry.Briefdescriptions of each of the5chapters in this paper are listed as below:Chapter1, the introduction part mainly describes the research background and the significance ofresearch topic, reviews known literature related to the establishment, evolution, reform, and abolishment oftobacco monopoly systems in China, as well as illustrates the research idea and research methodology.Chapter2, the analysis of historical evolution part is based on the system evolution theory.Government-led and mandatory are the two important characteristics of the evolution of tobacco monopolysystems in China, which are demonstrated through tobacco monopoly systems under different governmentsof Ming Dynasty, Qing Dynasties, Beiyang Warloard, Republic of China, and People’s Republic of China.Chapter3, the system effects part first analyses the background for implementing tobaccomonopoly system, then discusses about the system effects of its implementation. There were twobackgrounds for the implementing of tobacco monopoly in China: First, to ensure the state revenue; Second,implementing tobacco monopoly to carry out the will of the country,’the realization of prohibition throughadministrated production’, for tobacco products have negative externalities. System effects of tobaccomonopoly implementation are analysed based on data sources of tables and diagrams in this chapter. It isfound that although the implementation of tobacco monopoly did play an important role in ensuring thenational revenue, financial dependence of this country on tobacco monopoly continued to decline in recentyears, mainly because of the raising level of economics development and the gradually decreasingproportion of tobacco related profits and taxes in nation revenue. What is more, tobacco monopoly did nothelp solve the issue of negative externalities either. For the expected system effect,’the realization ofprohibition through administrated production’, is hardly achieved, and the cigarette production, domesticcigarette sales, and per capita cigarette consumptions have been continually raising since theimplementation of tobacco monopoly system.Chapter4, the issues and challenges part starts with the analysis of main issues existed within thetobacco monopoly system: unclear and mixed roles of government in tobacco enterprises, unclear propertyrights, insufficient use of investor rights, localisation of national-wide monopoly, and hindering theformation of scale economics in tobacco industry. The chapter then analyses challenges faced by tobaccoindustry and the monopoly system in this country: First, doubts raised about tobacco monopoly system and its compatibility with market economics, as the system was established in an planned economicsenvironment, which no longer existed following the establishment of market economics in this country;Secondly, domestic enterprises are facing intensified competition from large international tobaccocompanies, because of the more open market brought by the accession of China to the WTO; Thirdly,negative impacts on the tobacco industry emerged from various aspects, including the increasinglyintensified tobacco control movement, growing social costs of tobacco consumption, and raising publicattentions to the harm of smoking.Chapter5, the future of tobacco monopoly part tries to explore preliminarily the possibledevelopment of the tobacco monopoly system, hopping to provide useful guidances on tobacco systemreform in this country. The suggested guidances are based on analyses of various tobacco production andadministration systems world wide and the tobacco system evolutions in other countries, with specialattentions paying to those happened in the United States and Japan, of which in-depth analyses arepresented.Overall,system evolution theory guided the analyses in this paper, which consists of historicalanalysis of tobacco systems in previous governments in China, contemporary analysis of effects and issuesof the present system, as well as the tobacco system evolutions in other countries. Based on the theory andthe analyses, the author of this paper believes that incremental system evolution is the key to improve thecompetitiveness of tobacco industry and to realize eventually the elimination of government monopoly.