COMMENT Smoking coughers fill China's
coffers By Li YongYan
BEIJING
- China hosted its first Formula 1 Grand Prix at a brand
new circuit in Shanghai that cost US$320 million to
build. Engines roared, crowds cheered and the adrenalin
rushed. This sports event is a must-see for billions of
racing fans around the world. It is also a must-be-seen
venue for big corporations. Such powerhouses as
Hewlett-Packard, Panasonic, Advanced Micro Devices and
Siemens displayed their logos prominently all over the
track last weekend. Equally eye-catching were the
colorful brand names of top-selling cigarettes,
including Marlboro, 555 and Mild Seven, emblazoned on
the bodies of the powerful cars as the machines burned
rubber lap after lap.
Certainly cigarette
advertising is permitted at sporting events in other
countries, but wait a minute: hasn't China already
banned cigarette advertising from public places and from
television? Indeed it has. According to Article 18 of
the Advertising Law of the People's Republic of China
promulgated in 1994, "Advertisements of tobacco are
prohibited in broadcast, films, television, newspaper or
periodicals. It is prohibited to post tobacco
advertisements in ... sports sites and gyms."
Mainland press reports say the Chinese General
Industry and Commerce Administration has approved the
Marlboro advertisements on Formula 1 cars, but the
problem is that as a government body, it has no
authority to do so.
What happened? Shanghai, it
seems, has a special waiver from this law. But from
whom? Theoretically, the central government has no legal
authority to amend or bend laws without prior approval
from the legislature, the National People's Congress of
China. So the only plausible explanation is that the
partying parties have struck a secret deal that:
1) Removes legal obstacles for Formula 1 owners
to receive megabuck sponsorships from deep pocketed
tobacco firms;
2) Makes China happy to see the
potential worth of "collateral benefits" in hospitality
and other businesses as reported by local media. The
organizers boasted of 300 million yuan (US$36.25
million) in ticket box office receipts alone - 150,000
tickets sold in a matter of days;
3) Enables the
big tobacco companies to get back their money's worth
via state-run China Central TV (CCTV) Channel 5, which
reaches several hundred million viewers - and potential
consumers.
Commercialism once again prevailed
over the rule of law and public interests. But it should
not really be surprising, given the fact that tobacco
plays an important role in China's income balance sheet.
More than 310 million Chinese or 30% of the
population over the age of 15 are smokers who spend
about 310 billion yuan on nearly 2 trillion cigarettes a
year. In 2002, the national treasury pulled in 105
billion yuan in taxes and 40.61 billion yuan in profits
from the tobacco industry, a 100% government monopoly
(see www.tax.gov.cn). Tobacco is the single
biggest source of revenue for the state coffers: in
2003's ranking of 100 top tax contributors, 34 tobacco
companies made the list, and together they accounted for
35% (85 billion yuan) of the aggregate total (242
billion yuan) of the tax receipts from these 100
companies. By comparison, the building materials
industry has an estimated sales revenue of 490 billion
yuan for 2004 but a projected profit of 21 billion yuan,
only half of the tobacco industry's earnings.
Since the government is heavily dependent on the tobacco
industry for its budget, it is only natural to protect
the golden goose with, among other preferential treatments,
a relatively light tax at 46%, compared with the
stiff 60-90% in developed countries. This is in spite of
the fact that about 750,000 Chinese people die of
tobacco-related diseases each year, according to medical
reports. Criticism by concerned citizens is barely
audible.
Shanghai will keep hosting the Formula
1 competition for the next seven years. So Formula 1
can look forward to many happy returns to a
tobacco-friendly, revenue-hungry and rule-bending China.
Li YongYan is an analyst of Chinese
business, economics, politics and social issues.
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