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Fri, Jul 23, 2004 - Page 12 News List

China's tobacco monopoly denies BAT factory deal


China's tobacco monopoly yesterday denied a statement by British American Tobacco PLC (BAT) that the company had received permission to build China's first foreign cigarette factory.

"We have not authorized any foreign tobacco company to invest in any cigarette factory inside China," the State Tobacco Monopoly Administration said in a statement on its Web site.

BAT was unfazed by the blunt announcement by China's tobacco czars, suggesting it has backing from more powerful figures in Beijing.

"Our approvals are from the highest levels of the central government," said Ann Tradigo, a spokeswoman for the company at its London headquarters, refusing to comment further.

The tobacco giant announced last Friday that it had won permission to build a joint-venture factory in China that would turn out 100 billion cigarettes a year. It said it would have the right to distribute and sell the cigarettes inside China.

That would be a major step for foreign cigarette makers, whose activities so far in China are limited to distributing cigarettes through local partners and helping them upgrade production and marketing.

China is the world's biggest tobacco market, with annual sales of about 1.8 trillion ciga-rettes -- or about 30 percent of all of those sold worldwide. Foreign companies are keen for a share in a market where 60 percent of all adult men smoke.

BAT's announcement had provoked a "rather big reaction" in China, the tobacco monopoly said, noting that it had the exclusive right to make and distribute cigarettes in China and that any deal would require its approval.

It said China has been trying to reduce excess cigarette-making capacity and is cutting the number of manufacturers from 185 to about 80.

"Given the strict implementation of national laws, regulations and policies, we have not approved a new cigarette-making fac-tory," said the statement, which cited an unnamed spokesman.

The announcement last Friday by the maker of Lucky Strike, Kent and Dunhill cigarettes said it had permission from the central government and "relevant departments" for its plan to spend ?800 million (US$1.5 billion) to build the factory.

The location of the factory was not yet decided, although BAT says it was granted land-use rights in Mianyang, Sichuan Province, back in 2001. It has been in negotiations over a joint venture since then.

The announcement last week said BAT would have majority control of the venture with China Eastern Investment, a Hong Kong firm that has been its distributor in China for two years. It gave no other details.

State-owned China National Tobacco Corp and other Chinese producers have partnerships with foreign companies including Philip Morris, BAT Industries Ltd and Japan Tobacco Inc.

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