Tobacco

Smoke signals

How cigarette sales illustrate economic and social shifts in Dongbei

zhonghua-w

Zhonghua: brand loses its puff

In Ayn Rand’s Atlas Shrugged, the protagonist learns that members of an elite and enigmatic group of capitalists can be recognised by their choice of cigarette: an unknown brand marked by a single, golden dollar symbol on each stick. Members of this secret society are wealthy but morally irreproachable, and completely uncorrupt.

In China on the other hand, exclusive brands of cigarettes have typically served as small beacons of corruption. Giving gifts of expensive cigarettes, alcohol, or even mooncakes to win official favour was until relatively recently a very common practice, and according to an article on Sohu, a news portal, nowhere did officials get more gifts than in the three northeastern provinces known as Dongbei.

A preferred present were Zhonghua cigarettes, which typically cost as much as Rmb100 ($14.5) a pack. Although this price is nowhere near the cost of some of China’s more outrageously priced cigarette brands (which can burn up to $100 a pack) Zhonghua remains a symbol of everyday luxury. And it is a luxury most officials couldn’t afford on their own salaries. One tobacconist in Dongbei told Sohu: “Those who buy Zhonghua don’t smoke it, and those who smoke it don’t buy it.”

But sales of Zhonghua cigarettes in Dongbei fell 49% year-on-year in 2016, suggesting that the culture of gift-giving is diminishing. Of course this has been a trend witnessed across China since President Xi Jinping’s “crackdown on corruption” came into force. According to one Dongbei resident, if you do give gifts to a local official nowadays it will more likely scare them out of helping you, rather than encourage them to do so.

Another reason for the decline in high-end cigarette sales in Dongbei is a stumbling economy. The area’s GDP is highly dependent on mining and heavy industry, both of which have been hit hard by China’s shift to its “new normal”. It is also dominated by state-owned firms rather more dynamic private sector players.

Zhang Hong, an economist at China Media University, says “cigarette sales and the consumer index are inseparably related to each other. Cigarettes are the clearest markers of daily use and repeat buying rates for fast moving consumer goods… They are the most direct reflection of local economic changes”.

In Dongbei, Sohu reports, sales of other “Grade A” cigarettes (priced above Rmb20 per packet) are largely in decline. Traditionally the three dominant brands in this category occupy 80% of the local market, but over the last year their share has dropped by as much as 30%.

Taking their place are “Grade B” options (Rmb13-18 per packet), of which the majority are slims (targeted more at female smokers). In 2016 almost a third of national sales of slims were in Dongbei.

According to Sohu the region has experienced a 2,355% growth in sales by volume of slims over the last five years, and for every 10 packs of cigarettes at least one will be a box of slims. (Apparently the brand in most people’s pockets in the northeast today is Red Gold Dragon, with four-fifths of its national sales going to the region last year.)

One industry insider attempted to explain this uptick in slender cigarettes: “Slims allow Dongbei consumers, who are mortified about losing face, an excuse to appear pompous despite facing downward economic pressures. Instead of admitting that no one is buying them Zhonghua anymore, or that they don’t have enough money for more expensive brands, they can say that they’re trying to be healthier or keeping up with fashion… Really they’re cleverly covering up their embarrassment about the cost.”

As we pointed out in WiC221, the phenomenon is not just confined to Dongbei. At the super-high-end of the market is the brand Huang He Lou 1916. In 2012 – the year Xi’s clampdown on corruption and extravagance started – a pack cost Rmb2,000. By 2014 the price had halved, indicating that senior bureaucrats were already wary of accepting them.


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