Marlboro, one of the world's best-selling cigarettes, will be produced under licence next year in China, the world's largest cigarette market.

The China National Tobacco Corporation (CNTC) and tobacco giant Philip Morris International, which owns the Marlboro brand, reached a co-operation agreement in Beijing on Wednesday.

Under the agreement, Marlboro cigarettes will be produced under licence at CNTC's affiliate factories and distributed by CNTC's official distributors nationwide in China.

Official production is expected to start in the first half of next year, according to a Philip Morris statement. But the cigarette-producer did not reveal specifics on production volume or location.

Previous reports said that the Switzerland-based company would cooperate with Longyan Cigarette Factory in East China's Fujian Province and Baisha Group in Central China's Hunan Province to make more than 2 billion Marlboro cigarettes a year in China.

China consumes more than 1.8 trillion cigarettes a year a third of the world's total consumption and more than twice the amount Philip Morris produces worldwide.

"This will eventually be a significant business" for Philip Morris, an operating company of Altria Group Inc, wrote market analyst Bonnie Herzog at Citigroup in New York, with a "buy" rating on Altria's stock.

Other foreign tobacco makers have made attempts to enter China's huge market.

London-based British American Tobacco has been planning to set up a joint venture in the country for local production of its State Express 555 cigarettes, which was not ratified by China's tobacco industry watchdog.

The State Tobacco Monopoly Administration said that it would not allow the establishment of any new cigarette factories, as the production has already exceeded the market demand.

However, technological cooperation like the deal between Philip Morris and CNTC is open to foreign companies.

The world's fourth-largest cigarette company, Imperial Tobacco, signed a similar agreement with Yuxi Hongta Group in the Yunnan Province at the end of 2003. It produces the West brand cigarette locally and distributes in selected cities such as Beijing and Shanghai.

UK-based Gallaher Group Plc imports its LD brand into China and also has a cooperation agreement, allowing Shanghai Tobacco Group to make Memphis cigarettes.

While producing foreign branded cigarettes locally, the CNTC also expects to promote the Chinese brands in the world market.

It reached an additional agreement with Philip Morris to establish an international equity joint venture in Lausanne, Switzerland, where Philip Morris is headquartered.

The new venture, in which CNTC's subsidiary China National Tobacco Import and Export Group Corp and Philip Morris will hold 50 per cent of the shares respectively, is expected to offer consumers a comprehensive portfolio of Chinese brands globally.

The move may help expand the export of tobacco products and materials from China

"Our objective for co-operation with CNTC is to build a long-term global strategic partnership and the signing of the two agreements constitutes an important and meaningful step in that direction," said Andre Calantzopoulos, chief executive officer of Philip Morris International.

(China Daily December 23, 2005)