chapter  4
28 Pages

The rise of China’s “tobacco empire”

As discussed in the previous chapter, the local governments actively involved themselves in China’s tobacco sector, competed with each other, and fragmented the national market in the reform era, despite an overlay of the central government’s monopoly agencies. Similar to many other SOE sectors, it was evident in the tobacco industry that the nominal state ownership by the central government was highly decentralized and fragmented in reality. One outcome that resulted from decentralized and fragmented state ownership was spreading local protectionism, which benefi ted the weak SOEs as they were able to hold on to some or all of their market share thanks to the protection of local governments. As a result, the fi rms under the jurisdictions of these administrative units tended to be miniaturized, and many of them were profi tless. However, local protectionism offers one explanation for what was observed in a small fraction of the tobacco market. In the tobacco production market, about 20 out of 33 provinciallevel regions appeared to be such under-performers, as each of them enjoyed a market share of less than 3 per cent. It was the same in the tobacco trade market, where 19 provincial regions of the 33 enjoyed a quite stable market share of less than 3 per cent.