Commercial smoke-screen

　　IF you're a smoker and you've never heard of "Dancing Butterfly", "Seven Wolves" or "Viagra" brand cigarettes, you're not alone.

　　Those and about 1,100 other brands have for years frustrated the efforts of foreign tobacco companies to enter the Chinese market, which accounts for nearly a third of the global industry in terms of cigarettes smoked.

　　Now officials say Beijing is moving to overhaul the multiferous industry ahead of a gradual opening up. The government wants to create several national giants, stubbing out about half the country's 146 factories, while relaxing restrictions on the sale of foreign brands.

　　Special retail licences for overseas cigarettes will be abolished by the end of the year - a small but welcome step in a market that has long thwarted foreign access but which, according to State media, racked up about US billion in profits last year.

　　"We want to streamline the industry to prepare for foreign competition, so inefficient and poor-quality plants will be shut by the end of 2004," said an official at the State Tobacco Monopoly Administration. "We have no choice because it will eventually be easier for foreigners to come in."

　　China is the top cigarette market in the world with smokers lighting up about 1.7 trillion cigarettes annually - although that statistic comes with a terrible toll.

　　Some 700,000 Chinese die from tobacco-related illnesses every year - the highest tobacco-related mortality rate in the world, the World Health Organization said on its website, www.who.org.

　　There are more than 320 million smokers in China, and 3 million join them every year. More than 60 per cent of men and 4 per cent of women above the age of 15 smoke, it added.

　　Rules preventing minors below the age of 18 from buying cigarettes are seldom enforced. Advertising of cigarettes is banned on TV, radio and in print media, but direct marketing and sponsorship of sporting events is still allowed.

　　Bizarre brands

　　Smokers face a bewildering array of bizarre brand names in all colours and sizes. Yet few retailers carry more than a handful of foreign options. Local brands can cost less than 2 yuan , while a foreign pack can set you back 12 yuan.

　　"I've been selling cigarettes for more than 10 years and there're still some local brands I've never heard of," said Zhang Bo, a salesman at one gleaming outlet of Pudong Monopolist in Shanghai's eastern financial district.

　　British American Tobacco, Japan Tobacco and GallahersgroupsPlc are among those eager to tap the Chinese market, seeking growth beyond mature traditional markets, but they face high tariffs, inadequate distribution and rampant piracy.

　　"It still is a market which is closed to the big multinationals," said Jonathan Fell, a tobacco analyst with Morgan Stanley Dean Witter in London.

　　"The closures make sense, but there are still issues with distribution systems and branding."

　　A round of planned shutdowns could close 63 out of 146 factories, officials said, though most of these churn out 1 billion cigarettes a year - puny by Chinese standards - and their market share constitutes just 7.3 per cent collectively.

　　in contrast, the 11 largest ones - each pumping out more than 600,000 cartons per year - control 34 per cent of the market.

　　Foreign companies now have a market share of only 6 per cent. The China National Tobacco Corp (CNTC) - an alliance of State-owned manufacturers - commands over 90 per cent.

　　"Only foreigners and young office workers buy foreign brands. Your average local still prefers Chinese cigarettes," said Lin Guangren, a street-side vendor hawking Altriasgroupsinc's Marlboro in Shanghai's former French Concession.

　　'Our market'

　　Plans to set up local plants have been stymied by the State monopoly, which maintains there is an oversupply in the country.

　　BAT, the world's second-largest cigarette firm, signed an initial pact with the government to set up a cigarette-making plant in May 2001, but has been waiting for final approval since.

　　"There's been no new developments on that front," was all a London spokeswoman for BAT, which makes Lucky Strike, Kent and Dunhill, would say.

　　Britain's Gallaher also has an agreement with CNTC to make one of its brands - such as Benson & Hedges, Silk Cut or Mayfair - in CNTC factories and be distributed in China, while one of CNTC's would be made and distributed by Gallaher in Russia.

　　As part of China's WTO commitments, duties on cigarettes will plummet to 20 per cent from 70 per cent by 2004, while duty on tobacco leaves will be cut to 10 per cent from 40 per cent.

　　Still, local brands don't seem to be quaking before anticipated competition. Hongta Group, one of the country's premier cigarette makers, reckons it can triumph in the long run.

　　"We have to be wary of foreign competition but there's no reason to panic. This is still our market," a Hongta executive said from the company's headquarters in Yunnan in southwestern China.