Will Tobacco IPO Light Up?

Cheap cigarettes are easily available everywhere in China

The world's largest cigarette company is filing its IPO in Hong Kong -- China National Tobacco.

I raised my eyebrows when I found out.

To clarify, it's the Chinese state-owned tobacco monopoly's international subsidiary, China Tobacco International, is planning the listing. Its revenues were HK$5.1 billion (US$651 million) from January to September last year, according to documents filed with the Hong Kong stock exchange.

The state-owned monopoly filed an IPO in Hong Kong

China National Tobacco buys leaves from overseas markets such as Brazil and the United States, and then sells them to domestic cigarette manufacturers at a 6 percent mark-up.

The Chinese company also has a monopoly on all tobacco exports from China, which largely caters to Chinese tourists in duty-free outlets across Asia -- a very small market.

China National Tobacco doesn't publish data on its accounts, but Bloomberg News said a rare release of financial data in 2012 suggests the state-owned enterprise's earned profits were on par with HSBC and Walmart.

It's intriguing the application for the listing is being made now, at a time when everyone knows smoking is harmful to your health -- and who will invest in this IPO? Sounds like a test of investors' ethics.

According to the World Health Organization, 7 million deaths last year were attributed from cancer and other lung diseases, or 1 in 10 deaths worldwide, 1 million in China alone.

The country produces the most cigarettes in the world

The Chinese government puts out feeble public service announcements about the harmful effects of smoking on health, but in reality it makes a lot of money from holding the monopoly on selling tobacco...

In Hong Kong where smoking rates fell 10 percent in 2017, we'll have to see if people have the appetite to encourage others to light up...

China's Flip Flop on Smoking Ban

Enough cigarettes for you? A shop selling almost every local brand you'd want

Whenever China says it's going to be more stringent on smoking regulations, it's pretty much a joke.

The government is too vested in the tobacco industry to really want to help its citizens wean themselves off those cancer sticks.

The latest is that Beijing has back-pedaled on a proposed national smoke-free law, that would have banned smoking in all indoor and some outdoor public spaces.

Now the latest version of the Ordinance on Smoking Control in Public Spaces would allow restaurants, bars, hotels and airports to set aside smoking areas.

Bars, restaurants, hotels and airports will have smoking areas

Bernhard Schwartlander, the World Health Organization representative in China was concerned about the changes.

"You see again and again in the world such exceptions built in the law and it doesn't do much to protect the health of the people from second-hand smoke. A law that has so many exceptions can't be enforced. We have learned the best law is one that is 100 percent smoke free," he said.

There are about 315 million smokers in the mainland, and China is also the world's biggest producer and consumer of tobacco products. Around 700 million people are routinely exposed to second-hand smoke, according to the WHO.

It's hard to control because the tobacco industry is state-owned and generates more than 1.09 billion yuan in profit and tax revenue last year.

Even though the proposed national law is weak, 18 mainland cities have passed their own municipal smoking bans since 2008, of which Beijing's is the most stringent.

Smoker with a "no smoking" sign behind him in a restaurant

The law in the Chinese capital, which was passed last June, fully complies with the WHO's call for complete bans on smoking in all indoor workplaces, public transport areas and other public places.

A year after the ban was implemented, smoking in indoor areas dropped from 23.1 percent to 6.7 percent, while smoking in restaurants fell from 40.3 percent to 14.8 percent, according to the Beijing Health and Family Planning Commission.

Nevertheless, one would think such drops in numbers would be solid proof that these bans are effective, but old habits die hard.

It's practically impossible to get the numbers to zero because there are many who flout the municipal ban and think it doesn't apply to them, or restaurants don't want to be too heavy handed when it comes to enforcing the ban because it will make their diners angry.

Surely President Xi Jinping would insist on smoking bans -- if he did it would have happened already.

Or maybe the tobacco industry is too big of a fish to fry, or further down on his priority list.

But the impact of China's healthcare system having to deal with an explosion of cancer cases is something that worries him... or not?