Gushan: In-Depth Analysis of China's Tobacco Regulator's Next Moves

At 3:50 pm on November 1, 2019, the State Tobacco Monopoly Administration issued Document No. 1 of the year, setting off a major earthquake in the e-cigarette industry (hereinafter referred to as Document No. 1), urging enterprises and individuals engaged in e-cigarettes to stop selling and promoting e-cigarettes through the Internet. A few minutes later, various e-cigarette brands led by Yueshi began to express their support and resolutely implement corresponding policies. Various e-commerce platforms led by Pendoduo began to remove e-cigarette related products. The e-cigarette industry was wailed everywhere, and e-commerce agents in the circle began to retire and dump goods, and the entire e-cigarette industry stayed up all night……
 
Regarding whether this“ urging” policy has legal benefits, I think there is. The red-headed document issued by an administrative agency in a monopoly industry, in conjunction with the State Administration for Market Supervision and Administration, certainly has dual administrative and legal effects. The“ urging” more reflects the need to provide various enterprises, individuals, and e-commerce platforms with a certain buffer time. Although the document does not mention a clear time point, the requirements that need to be implemented in place are beyond doubt. The special phenomenon of cigarettes being sold through the Internet while e-cigarettes are in full swing through the Internet will undoubtedly become history, and there are two more issues that make us sad: First, this policy restricts not only sales, but more seriously, it restricts“ online publicity”. In other words, soft articles, public accounts, etc., and any communication means in the new era and new situation are gone. Second, Document No. 1 has been released, how far is Document No. 2 away from us? What will everyone's analysis be like? How do we need to respond? Here, Gushan wants to join everyone to analyze and solve the problem and what actions the State Tobacco Monopoly Administration may take next.

To solve this problem, we need to first understand our country's tobacco monopoly system.
 
What is the tobacco monopoly system and why should my country implement the monopoly system

The first thing that needs to be clear is that at present, not only tobacco is implementing a monopoly system in my country, but many industries such as salt, tap water, and energy are also implementing a monopoly system, while alcohol, drugs, etc. are still implementing a license system. As a system, monopoly was first developed from the government-run industrial and commercial system in our country's feudal society. At that time, it was called the monopoly system. Let's briefly understand the history of the monopoly system:

1. Qi began to implement the salt and iron monopoly policy during the Spring and Autumn Period, which is considered to be the earliest record of the monopoly system in the written history of my country;
 
2. The Western Han Dynasty monopolized wine, salt, and iron, and there are corresponding records in Tang history. Before the Middle Tang Dynasty, monopoly was limited to three categories of salt, iron, and wine. After the Middle Tang Dynasty, tea, alum, vinegar, and some medicines were also included in the monopoly;

3. Across the long river of history, to the modern Republic of China and the National Period, salt, sugar, cigarettes, alcohol, tea, and matches were all included in the monopoly system. In 1915, the Ministry of Finance of the Republic of China established the Tobacco and Liquor Public Sales Bureau to implement public sales of tobacco and alcohol. The tax rate is higher than that of other commodities. In 1927, after the establishment of the National Government, the Kuomintang government formulated and promulgated my country's first tobacco monopoly regulations, the "Interim Regulations on Public Sale of Tobacco", and the rudiment of my country's tobacco monopoly system has emerged;

4. In the early days of the founding of the People's Republic of China, tobacco and alcohol monopoly companies were established in most regions, provinces and cities of our country, with unified production and marketing. In 1954, the Central and Local Ministry of Industry was established and took over the local state-owned cigarette industry. In 1963, the central government approved the establishment of the first national tobacco trust, China Tobacco Industry Corporation, implementing a management system that integrates production and supply for tobacco.
 
5. In 1981, the State Council decided to establish China Tobacco Corporation to implement national monopoly on tobacco. On January 1, 1982, China Tobacco Corporation was officially listed. In 1983, the State Council approved the establishment of the State Tobacco Monopoly Administration to provide comprehensive administrative management of tobacco monopoly. On September 23 of the same year, the State Council issued the "Tobacco Monopoly Regulations". On June 29, 1991, the National People's Congress passed the first in the history of my country's tobacco industry. The Tobacco Monopoly Code "Tobacco Monopoly Law" establishes and fixes the national tobacco monopoly system, centralized and unified management of the industry, and vertical leadership system in the form of law, marking that my country's tobacco monopoly has since embarked on the track of governance in accordance with the law.# p#pagination title #e#

By sorting out the above history, we can know that my country's tobacco monopoly system has a complete legal basis. It is not only a political system, but also a cultural system. Behind the tobacco monopoly system, it is not just fiscal revenue. It is so simple. The Tobacco Monopoly Bureau is the highest administrative body at the national level. It needs to make targeted adjustments and management based on my country's national conditions in different development periods. Then we naturally wonder, what are the advantages and disadvantages of this monopoly system? Combined with China's current national conditions, where will China's e-cigarettes under the tobacco monopoly system go?

Judging from the current national conditions, will my country relax the tobacco monopoly system? How will it be relaxed?

First of all, we must be clear that the essence of the tobacco monopoly system is to improve the quality of tobacco, protect the interests of the broad masses of the people, and ensure national fiscal revenue. Integrated management is conducive to controlling the total amount, maintaining a balance between production and marketing, and preventing blind development, and facilitating the control of the industry. The profit level greatly increases the national fiscal revenue. For China, which is in the developing stage, implementing the tobacco monopoly system is an important means for the country to accumulate capital.
 
Secondly, the tobacco industry involves many industries such as agriculture, industry, and service industries, providing more than 20 million job opportunities to society.

Moreover, China currently needs a tobacco monopoly system to prevent the invasion of foreign tobacco companies with strong market competitiveness. Controlling the world's largest tobacco consumer market in the hands of its own nation is not only a political task, but also a national task and historical need.

We cannot simply use the systems of developed countries to set up our country's social system, or even simply believe that in the face of the products of an era, policies should give way. Putting aside institutional issues, first of all, from the perspective of social development, our country has not achieved the goal of relaxing the social stage of the tobacco market. The loss of some fiscal revenue is small, and the loss of control over the development of the industry and social development is huge! After joining the WTO in China, the government has made tremendous changes, and many pillar industries have achieved relative market opening. However, just like the automobile industry, even after being opened up for so many years, there is still a huge gap between domestic and international companies in terms of competitiveness. A country needs stability and stability to achieve the best development! Over the past few hundred years, the tobacco industry that has formed intermittently in China and the e-cigarette industry that has formed in the past ten years have weighed the lesser of the two evils. The government will treat new things very cautiously! So from this perspective, strict supervision of the e-cigarette industry is inevitable! In Document No. 1, e-cigarettes are defined as a supplement to traditional tobacco, and then e-cigarettes are included in the tobacco monopoly system in subsequent policy formulation, which is a high probability event.
 
Of course, we must also see that with the development of the times and society, the tobacco monopoly system has reflected more and more shortcomings:

Tobacco monopoly deviates from voluntary and equal market transaction rules to a certain extent, undermines the orderly and open market competition order, thus fundamentally limiting the improvement of the competitiveness of China's tobacco industry. Secondly, the tobacco monopoly system has created high monopoly profits and unequal income distribution among industries, which is not conducive to the development of a harmonious society.

But what we need to think about is, what chance should e-cigarettes have to obtain high profits under this special constitution? We must understand that this kind of high profits is generated by a special system. How can we obtain such high profits if we are not included in this system? Is the current profit margin of the entire e-cigarette industry a loophole in this special system? If we were policymakers, what are the odds that we would tolerate such loopholes?

Moreover, it is true that this monopoly system has drawbacks, but in the face of the drawbacks and the benefits it brings to society, does this drawback really need to be changed immediately? Are the conditions ripe for change? Tobacco control is a long-term and step-by-step task. Will relaxing the e-cigarette market really help tobacco control? If we were policy makers, what choices would we make in the face of such advantages and disadvantages?
 
Let us think further. Our country's current laws stipulate that tobacco is not allowed to be sold through the Internet and advertising is not allowed. What Document No. 1 urges is just a matter of time! The next step is definitely aimed at offline, which requires a tobacco business license, which is governed by the "Tobacco Monopoly Law". How many of the various e-cigarette specialty stores have obtained formal tobacco monopoly licenses? Even if you apply, what are the chances of getting a permit? Although we often say that we should look at how the government defines e-cigarettes and whether they belong to electronic products or tobacco products, if we carefully look at Document No. 1 and the official website of the State Tobacco Monopoly Administration, it is already a definite thing that e-cigarettes (cigarette bombs) are defined as a new type of tobacco! From this perspective, isn't the ending of offline stores clearly there? Could this be the main content of Document No. 2?# p#pagination title #e#

Insert a national standard here. The national standard and the system are two different things. The national standard is industrial demand and social demand. Regardless of whether the industry is a state-owned monopoly industry, it requires the national standard. Therefore, the impact of the introduction of the national standard on the e-cigarette industry will only occur on the industrial side. In other words, this is a concern for private and state-owned production enterprises. For practitioners in the entire industry, what we need to pay attention to is the Tobacco Monopoly Law.
 
Of course, as a system that is increasingly showing shortcomings, policy makers will definitely make improvements. Judging from the analysis of my country's current national conditions, the most likely change should be part of the market license system for reference to alcohol and drugs. Under this system, the government can still carry out strong management of production, supply and marketing, profits are completely controllable, and social development can basically adapt. When it comes to time, I think it will take some time, because of legislative amendments. It requires a complex administrative process, but I am opposed to the claim on the Internet that the law can be“ implemented without prohibition”.