China has banned foreign companies from setting up joint venture operations, a major blow to the world's tobacco giants seeking in-roads into the globe's largest cigarette market, state press reported yesterday.
"The country's current cigarette manufacturing capacity exceeds market demand and the establishment of new cigarette factories will not be approved," the China Daily quoted State Tobacco Monopoly Administration spokesman Xing Wanli as saying.
"China won't allow any new cigarette factories to be built, including joint ventures," Xing said.
Although the regulations do not include deals approved prior to this year, the news is a final nail in the coffin for British American Tobacco's (BAT's) hoped for deal to build its own operations in China.
Last year BAT, the world's second largest cigarette manufacturer, announced in London that Beijing regulators had approved its proposal to form a joint venture that would have the capacity to produce 100 billion cigarettes a year.
A week later the Chinese authorities denied that the British firm had won a contract to set up a US$1.5 billion manufacturing joint venture with China Eastern Investments Corp.
The makers of Lucky Strikes and State Express 555 cigarettes, have since been lobbying the government in hopes the government will change its mind, the official Xinhua news agency said.
Cigarettes will continue to be classified as a special product and as such will continue to be run as a monopoly, with cigarette distribution falling on the shoulders of the China Tobacco Company, Xing said.
Smokers total about 36 percent of China's total population, or 350 million people.