Cost of smoking higher than revenue

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Today, tobacco is deeply entwined in Chinese culture, from the compulsory cigarettes given to male guests at almost every wedding, to the glossy images of national icons that adorn cigarette packets.

It is estimated that tobacco kills a million Chinese each year, says Yang Gonghuan, deputy head of China's National Tobacco Control Office. China's smokers puff their way through a bounty of cigarettes given as gifts on special occasions and holidays.

The government must weigh up conflicting interests: As it extends healthcare insurance across the population, at what point do the economic and medical costs of smoking-related illnesses outweigh the financial benefits of the tobacco industry?

If China fails to reduce tobacco consumption the number of deaths is expected to double by 2025 and triple by 2050, says Yang, also deputy head of the Chinese Center for Disease Control and Prevention (CDC).

A total of 301 million Chinese, 28 percent of the population, inhales a steady diet of cigarettes, according to a survey released by China CDC, the World Health Organization (WHO) and the US CDC in August.

The reduction in the number of smokers in China has been negligible, even in the five years since China ratified the WHO Framework Convention on Tobacco Control, says Yang. The number of smokers declined by 0.45 percent annually from 2003 to 2010, less than the 0.9 percent from 1996 to 2002, said Yang, citing a report to be published on Jan 9 next year.

China's tobacco consumption has been steadily growing, from 589.9 billion cigarettes in 1978 to about 2.3 trillion last year, according to the China National Tobacco Corporation (CNTC) website.

New studies are challenging the prevailing belief - even entertained by non-smokers - that the tobacco industry is too important to the economy to discourage its development.

Tobacco generated 513.1 billion yuan ($77.3 billion) in taxes and profits last year, more than 7.5 percent of the total central government revenues, and employed 520,000 workers in 183 factories, according to official statistics. The absolute production value of the industry rose from 100 billion yuan in 1978 to 513.1 billion yuan last year.

However, citing the report to be released in January 2011, Yang argues the net contribution of tobacco to China's economy is around minus 20 percent.

Cases of lung cancer in China have soared by 465 percent since 1980, and account for nearly a quarter of cancer deaths, says Zhi Xiuyi, head of the Lung Cancer Diagnosis and Treatment Center of the Capital Medical University in Beijing.

Diseases and fatalities caused by tobacco use have a time lag of 20 to 25 years, says Zhi, who is also head of the department of tobacco control and lung cancer prevention at the Cancer Foundation of China.

In the past, when individuals, work units and companies covered health insurance and medical care, the nominal cost to the government was negligible, says Zhi.

However, the government is rolling out its own health insurance program across the country, so it will become more liable for the costs of smoking-related illnesses, he says.

"At the end of the day, all Chinese, including non-smokers, will be burdened with the medical costs of smokers," says Zhi.

Raising taxes and prices have proved to be the most effective means to reduce smoking, says Teh-wei Hu, professor of health economics in the School of Public Health at the University of California, Berkeley.

However, cigarettes have become more than twice as affordable in China since 1990, and smoking is much cheaper than in other countries, says Hu, also a senior policy advisor to China's Ministry of Health.

The overall effective tax rate of 40 percent on a packet of cigarettes in China is much lower than the international average, which ranges from 65 percent to 70 percent.

The tobacco industry has long argued that tax increases risk cutting government revenues, but Hu says a tax rise would actually raise revenues while reducing tobacco demand.

However, the decision to raise the consumption tax on cigarettes by between 6 to 11 percent in May 2009 brought increased revenues, but no reduction in tobacco use.

If China's tobacco tax rose to 51 percent, from the current 40 percent, of the retail price, the price of cigarettes would be such that the number of smokers would decrease, according to Hu's study.

As more than half of Chinese smokers pay less than 5 yuan per pack, a big enough tax hike would persuade many poorer smokers to quit if almost 11 percent of their household expenditure went on cigarettes, says Hu.

The article is an abridged version of a commentary of Xinhua News Agency.

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