Berkeley researcher to study economic impacts of China’s anti-smoking efforts
Information shortfall hampers officials caught between health and revenue concerns

By Sarah Yang, Public Affairs

25 September 2002 | A $1.7-million federal grant will help Berkeley researchers study the economic impact of smoking-prevention efforts in China, the largest consumer of tobacco products in the world. The five-year grant from the Fogarty International Center of the National Institutes of Health was announced on Sept. 25.

Cigarette production in China has nearly doubled since 1982, and there are now more than 320 million smokers there — a quarter of all smokers worldwide. Government officials have been struggling to balance the health benefits of quitting smoking against the economic importance of the domestic tobacco industry. Government-run tobacco production in China provides a major source of income for farmers in poor regions of the country, while generating — through taxes and profits paid by smokers — 11 percent of total revenues for the central government.

“This conflict of interest is a major dilemma for the Chinese government,” says Teh-wei Hu, professor of health economics at Berkeley’s School of Public Health and principal investigator of the study.

Raising taxes on tobacco has proven a successful way to reduce per-capita smoking rates, thus improving public health (and reducing smoking-related medical expenses) while generating increased government revenues, says Hu, pointing to California, England, Thailand, and South Africa as examples. In the June issue of the journal Tobacco Control, Hu published an analysis of how an increased tobacco tax in China would affect smoking rates and the national economy, using published figures of tobacco production and consumption in China from 1980 to 1997 to calculate the impact.

Hu estimated that 5.76 million to 8.64 million smokers would quit if the price of a pack of cigarettes increased 10 percent, leading to an estimated loss of $142 million (11.74 billion Yuan) in earnings and revenue for the tobacco industry. However, the extra tax would generate about $297 million (24.58 billion Yuan) for the central government, offsetting twofold the tobacco-industry loss. The extra revenue, says Hu, could be used for rural health care, other health-promotion activities, and to help tobacco farmers switch to other crops such as coffee, tea and flowers.

Factoring in savings from reduced smoking-related medical care costs would add to the financial benefits for the government, saving up to $81 million (672 million Yuan). “It’s a win-win situation for the central government,” says Hu.

Solid data for officials
“Policymakers in China have been operating with little information to help them properly judge the true economic impact of reducing tobacco use in the country,” says Hu. “We will look closely at the economic costs of smoking and the cost-effectiveness of tobacco-control intervention so officials can make decisions based upon solid data.”

Research supported by the NIH grant will also consider the economic impact of China’s entry into the World Trade Organi-zation, which requires China to open up its domestic tobacco market to foreign companies. Foreign cigarettes now cost twice as much as domestic brands, but China has agreed to cut import tariffs on cigarettes from 65 percent to 25 percent by 2004.

“The tobacco industry in China is already feeling vulnerable to the coming competition from foreign markets,” says Hu. “U.S. companies such as Philip Morris and R.J. Reynolds have already set up joint ventures in China in preparation for the change.”

Co-investigators of the study at Berkeley include Kirk Smith, professor and chair of the Division of Environmental Health Sciences, and Katharine Hammond, professor of environmental health sciences.

To get a sense of the costs of secondhand smoke, Smith says, the study will compare disease rates in non-smokers who live with a smoker with the rates of those who don’t. In the vast majority of cases, the non-smoker will be a woman or child. Only four percent of Chinese women over 15 smoke, compared to 63 percent of men over 15.

“History has shown that one of the things that really helps get tobacco-control policies passed is public concern with passive smoking,” says Smith. “It’s one thing to say that smokers are only harming themselves, but quite another to say they may be hurting others, especially children.”