Economics of Tobacco Control in China

The following sections are included:

• Preface
• Contents
• List of Contributors

China has a population of more than 1.3 billion. Nearly 370 million people in China smoke; about one-third of all smokers in the world are in China. About 65 percent of those who do not smoke, mostly women and children, are exposed to harmful second-hand smoke (SHS). The negative health consequences of smoking include more than 1.2 million smoking-related deaths in China each year. If smoking rates in China do not decrease, the smoking death toll in China by the year 2030 is expected to be more than 2.2 million people per year. Cigarette smoking is a driving force in the rising rate of chronic diseases in China, a situation that puts increasing pressure on China's economy and its health care system…

Objective —To estimate the health-related economic costs attributable to smoking in China for persons aged 35 and older in 2003 and in 2008 and to compare these costs with the respective results from 2000.

Methods — A prevalence-based, disease-specific approach was used to estimate smoking-attributable direct and indirect economic costs. The primary data source was the 2003 and 2008 China National Health Services Survey, which contains individual participant's smoking status, healthcare utilization, and expenditures.

Results—The total economic cost of smoking in China amounted to $17.1 billion in 2003 and $28.9 billion in 2008 (both measured in 2008 constant US dollars). Direct smoking-attributable healthcare costs in 2003 and 2008 were $4.2 billion and $6.2 billion, respectively. Indirect economic costs in 2003 and 2008 were $12.9 billion and $22.7 billion, respectively. Compared to 2000, the direct costs of smoking rose by 72% in 2003 and 154% in 2008, while the indirect costs of smoking rose by 170% in 2003 and 376% in 2008.

Conclusion—The economic burden of cigarette smoking has increased substantially in China during the past decade and is expected to continue to increase as the national economy and the price of healthcare services grow. Stronger intervention measures against smoking should be taken without delay to reduce the health and financial losses caused by smoking.

Purpose This study estimated secondhand smoke (SHS) exposure at home among nonsmoking children (age 0–18) and adults (age ≥ 19) in rural China, and examined associated socio-demographic factors.

Methods A total of 5,442 nonsmokers (including 1,456 children and 3,986 adults) living in six rural areas in China were interviewed in person. The standardized questionnaire obtained information on their demographic characteristics and SHS exposure at home. Differences in SHS exposure were assessed by use of the chi-squared test. Logistic regression analysis was used to examine the associated factors.

Results Occurrence of SHS exposure at home among nonsmoking children and adults was 68.0 and 59.3%, respectively. Logistic regression analysis found that children living in households with married, low-education, and low-income heads of household, and those who resided in the Qinghai province of China were more likely to be exposed to SHS. Among adults, those who were female, aged 19–34, single, low-education, and low-income, and those who lived in Qinghai province were more likely to be exposed to SHS at home.

Conclusions Our findings of substantial SHS exposure at home in rural China emphasize the importance of implementing interventions to reduce SHS exposure among this population.

Objective The goal of this study was to assess the healthcare costs attributable to secondhand smoke (SHS) exposure among non-smoking adults (age ≥ 19) in rural China.

Methods We analysed data from the 2011 National Rural Household Survey which was conducted among adults in five provinces and one municipality in China (N=12 397). Respondents reported their smoking status, health conditions and healthcare expenditures. Relative risks were obtained from published sources. Healthcare costs included annual outpatient and inpatient hospitalisation expenditures for five SHS-related diseases: asthma, breast cancer (female only), heart disease, lung cancer and tuberculosis. SHS-attributable healthcare costs were estimated using a prevalence-based annual cost approach.

Findings The total healthcare costs of SHS exposure in rural China amounted to $1.2 billion in 2011, including $559 million for outpatient visits and $612.4 million for inpatient hospitalisations. The healthcare costs for women and men were $877.1 million and $294.3 million, respectively. Heart disease was the most costly condition for both women ($701.7 million) and men ($180.6 million). The total healthcare costs of SHS exposure in rural China accounted to 0.3% of China's national healthcare expenditures in 2011. Over one-fifth of the total healthcare costs of SHS exposure in rural China were paid by health insurance. The out-of-pocket expenditures per person accounted for almost half (47%) of their daily income.

Conclusions The adverse health effects of SHS exposure result in a large economic burden in China. Tobacco control policies that reduce SHS exposure could have an impact on reducing healthcare costs in China.

This paper investigates the price elasticity of cigarettes using an urban household survey in China. We find that cigarette price is an important determinant of smoking. In our two-part model, the overall price elasticity is −0.82. Nevertheless, tobacco demand is influenced by both price and quality. We net out the quality effect of tobacco demand to obtain standard price elasticities, which are between −0.70 and −0.35. In addition, when we estimate two demand systems of Chinese households, the estimated own-price elasticities of cigarettes are −0.57 and −0.81. These elasticities suggest that if the tobacco excise tax rate goes up, cigarette consumption will drop rapidly, and government revenue from the tobacco tax will increase.

Background Recent studies have found that Chinese smokers are relatively unresponsive to cigarette prices. As the Chinese government contemplates higher tobacco taxes, it is important to understand the reasons for this low response. One possible explanation is that smokers buffer themselves from rising cigarette prices by switching to cheaper cigarette brands.

Objective This study examines how cigarette prices influence consumers' choices of cigarette brands in China.

Methods This study uses panel data from the first three waves of the International Tobacco Control China Survey, drawn from six large cities in China and collected between 2006 and 2009. The study sample includes 3477 smokers who are present in at least two waves (8552 person-years). Cigarette brands are sorted by price into four tiers, using excise tax categories to determine the cut-off for each tier. The analysis relies on a conditional logit model to identify the relationship between price and brand choice.

Findings Overall, 38% of smokers switched price tiers from one wave to the next. A ¥1 change in the price of cigarettes alters the tier choice of 4–7% of smokers. Restricting the sample to those who chose each given tier at baseline, a ¥1 increase in price in a given tier would decrease the share choosing that tier by 4% for Tier 1 and 1–2% for Tiers 2 and 3.

Conclusions China's large price spread across cigarette brands appears to alter the brand selection of some consumers, especially smokers of cheaper brands. Tobacco pricing and tax policy can influence consumers' incentives to switch brands. In particular, whereas ad valorem taxes in a tiered pricing system like China's encourage trading down, specific excise taxes discourage the practice.

Background China has long kept its tobacco taxes below international standards. The Chinese government has cited two rationales against raising tobacco tax, namely, the unfair burden it places on low-income smokers and the ability of consumers to switch to cheaper brands.

Objective This study examines how different socioeconomic subgroups of Chinese smokers switch brands in response to cigarette price changes.

Methods We model smokers' choice of cigarette tier as a function of tier-specific prices. We examine heterogeneous responses to prices by estimating mixed logit models for different income and education subgroups that allow for random variation in smokers' preferences. We use data from three waves of the longitudinal International Tobacco Control China Survey, collected in six large Chinese cities between 2006 and 2009.

Findings Low-income and less educated smokers are considerably more likely to switch tiers (including both up-trading and down-trading) than are their high-socioeconomic status (SES) counterparts. For those in the second-to-lowest tier, a ¥1 ($0.16, or roughly 25%) rise in prices increases the likelihood of switching tiers by 5.6% points for low-income smokers and 7.2% points for less educated smokers, compared to 1.6% and 3.0% points for the corresponding high-SES groups. Low-income and less educated groups are also more likely to trade down compared to their high-SES counterparts.

Conclusions Only a small percentage of low-income and less educated Chinese smokers switched to cheaper brands in response to price increases. Hence, the concern of the Chinese government that a cigarette tax increase will lead to large-scale brand switching is not supported by this study.

Context One of the challenges China faces in implementing tobacco control policies is to change the social norm, especially the culture and behaviors surrounding cigarette gift giving.

Objectives To develop evidence for the tobacco control policy initiative issued in China at the end of 2013.

Methods Analysis of data from a national survey on tobacco utilization that contains information on cigarette gift exchanges, conducted by the China Bureau of Statistics in 31 provinces of China from October to November 2005.

Participants A national representative random sample of 171,924 persons aged 15 years or older from 23,000 urban and 37,000 rural households. The sample was based on the 2005 Census. Of the sample, 171,876 people had valid data, and 43,457 smokers reported information on cigarette gift exchanges.

Results 19.11% of Chinese smokers reported receiving cigarettes as gifts, 9.02% of smokers gave cigarettes to others, and over 23% of the smokers had either received or given cigarettes as gifts. Given that the survey was not conducted during the country's highest gift-giving occasion, the Chinese New Year, the rate of cigarette gift exchange could actually be much higher than these figures suggest. The highest smoking prevalence (39.08%) and the highest rate of cigarette gifting (36.05%) were reported by smokers working for government agencies. The multivariate results show urban smokers were more likely to receive cigarette gifts (Odds=1.13). Male smokers were less likely to receive cigarette gifts than female smokers (Odds = 0.88). Smokers between the ages of 15 to 19 were more likely to receive or give cigarette gifts. Higher educated and high-income smokers were more likely to receive cigarette gifts, and smokers with a high school education level were more likely to send cigarettes to others.

Conclusions Tobacco control measures should be aimed at changing the cigarette gifting culture and behavior in China. Targeting government officials, higher educated and high-income people will help remove the social barriers to implementing tobacco control in China. In November, 2013, China's State Council released regulation against giving cigarette as gift to government officials. This was a major step for the Chinese government to change the social norm from using cigarette as a means of gift giving. It should help to remove one of the social barriers of tobacco control.

Objectives To identify key economic issues involved in raising the tobacco tax and to recommend possible options for tobacco tax reform in China.

Methods Estimated price elasticities of the demand for cigarettes, prevalence data and epidemiology are used to estimate the impact of a tobacco tax increase on cigarette consumption, government tax revenue, lives saved, employment and revenue loss in the cigarette industry and tobacco farming.

Results The recent Chinese tax adjustment, if passed along to the retail price, would reduce the number of smokers by 630 000 saving 210 000 lives, at a price elasticity of −0.15. A tax increase of 1 RMB (or US$0.13) per pack of cigarettes would increase the Chinese government's tax revenue by 129 billion RMB(US 17.2 billion), decrease consumption by 3.0 billion packs of cigarettes, reduce the number of smokers by 3.42 million and save 1.14 million lives.

Conclusion The empirical economic analysis and tax simulation results clearly indicate that increasing the tobacco tax in China is the most cost-effective instrument for tobacco control.

Objectives To compare the new tobacco tax structure effective from May 2009 with the tax structure before May 2009 and to analyse its potential impact.

Methods Published government statistics and estimated price elasticities of the demand for cigarettes are used to estimate the impact of the new tax rate adjustment on cigarette consumption and population health.

Results The new adjustment increased the tax rate by 11.7% points at the producer price level. Converting this 11.7% point increase to the retail price level would mean an increase of 3.4% points in the retail price tax rate. Thus, China's new cigarette tax rate at the retail level would be 43.4% instead of the previous 40%.

Conclusions The primary motivation for the recent Chinese government tobacco tax adjustment is to raise additional government revenue. Because the additional ad valorem tax has not yet been transferred to smokers, there is no public health benefit. It is hoped that the Chinese government will pass along these taxes to the retail price level, which would result in between 640 000 and two million smokers quitting smoking and between 210 000 and 700 000 quitters avoiding smoking-related premature death.

Objective To explain China's cigarette pricing mechanism and the role of the Chinese State Tobacco Monopoly Administration (STMA) on cigarette pricing and taxation.

Methods Published government tobacco tax documentation and statistics published by the Chinese STMA are used to analyse the interrelations among industry profits, taxes and retail price of cigarettes in China.

Results The 2009 excise tax increase on cigarettes in China has not translated into higher retail prices because the Chinese STMA used its policy authority to ensure that retail cigarette prices did not change. The government tax increase is being collected at both the producer and wholesale levels. As a result, the 2009 excise tax increase in China has resulted in higher tax revenue for the government and lower profits for the tobacco industry, with no increase in the retail price of cigarettes for consumers.

Conclusions Numerous studies have found that taxation is one of the most effective policy instruments for tobacco control. However, these findings come from countries that have market economies where market forces determine prices and influence how cigarette taxes are passed to the consumers in retail prices. China's tobacco industry is not a market economy; therefore, non-market forces and the current Chinese tobacco monopoly system determine cigarette prices. The result is that tax increases do not necessarily get passed on to the retail price.

Objective To use a computer simulation model to project the potential impact in China of tobacco control measures on smoking, as recommended by the World Health Organization Framework Convention on Tobacco Control (FCTC), being fully implemented.

Design Modelling study.

Setting China.

Population Males and females aged 15–74 years.

Intervention Incremental impact of more complete implementation of WHO FCTC policies simulated using SimSmoke, a Markov computer simulation model of tobacco smoking prevalence, smoking attributable deaths, and the impact of tobacco control policies. Data on China's adult population, current and former smoking prevalence, initiation and cessation rates, and past policy levels were entered into SimSmoke in order to predict past smoking rates and to project future status quo rates. The model was validated by comparing predicted smoking prevalence with smoking prevalence measured in tobacco surveys from 1996–2010.

Main outcome measures Projected future smoking prevalence and smoking attributable deaths from 2013–50.

Results Status quo tobacco policy simulations projected a decline in smoking prevalence from 51.3% in 2015 to 46.5% by 2050 in males and from 2.1% to 1.3% in females. Of the individual FCTC recommended tobacco control policies, increasing the tobacco excise tax to 75% of the retail price was projected to be the most effective, incrementally reducing current smoking compared with the status quo by 12.9% by 2050. Complete and simultaneous implementation of all FCTC policies was projected to incrementally reduce smoking by about 40% relative to the 2050 status quo levels and to prevent approximately 12.8 million smoking attributable deaths and 154 million life years lost by 2050.

Conclusions Complete implementation of WHO FCTC recommended policies would prevent more than 12.8 million smoking attributable deaths in China by 2050. Implementation of FCTC policies would alleviate a substantial portion of the tobacco related health burden that threatens to slow China's extraordinary gains in life expectancy and prosperity.

Background In China, there are more than 300 million male smokers. Tobacco taxation reduces smoking-related premature deaths and increases government revenues, but has been criticised for disproportionately affecting poorer people. We assess the distributional consequences (across different wealth quintiles) of a specific excise tax on cigarettes in China in terms of both financial and health outcomes.

Methods We use extended cost-effectiveness analysis methods to estimate, across income quintiles, the health benefits (years of life gained), the additional tax revenues raised, the net financial consequences for households, and the financial risk protection provided to households, that would be caused by a 50% increase in tobacco price through excise tax fully passed onto tobacco consumers. For our modelling analysis, we used plausible values for key parameters, including an average price elasticity of demand for tobacco of −0.38, which is assumed to vary from −0.64 in the poorest quintile to −0.12 in the richest, and we considered only the male population, which constitutes the overwhelming majority of smokers in China.

Findings Our modelling analysis showed that a 50% increase in tobacco price through excise tax would lead to 231 million years of life gained (95% uncertainty range 194–268 million) over 50 years (a third of which would be gained in the lowest income quintile), a gain of US$703 billion ($616–781 billion) of additional tax revenues from the excise tax (14% of which would come from the lowest income quintile, compared with 24% from the highest income quintile). The excise tax would increase overall household expenditures on tobacco by $376 billion ($232– 505 billion), but decrease these expenditures by $21 billion (−$83 to $5 billion) in the lowest income quintile, and would reduce expenditures on tobacco-related disease by $24.0 billion ($17.3–26.3 billion, 28% of which would benefit the lowest income quintile). Finally, it would provide financial risk protection worth $1.8 billion ($1.2–2.3 billion), mainly concentrated (74%) in the lowest income quintile.

Interpretation Increased tobacco taxation can be a pro-poor policy instrument that brings substantial health and financial benefits to households in China.

Funding Bill & Melinda Gates Foundation and Dalla Lana School of Public Health.

Copyright © Verguet et al. Open access article distributed under the terms of CC BY-NC-SA.

Aim: The aim of this study was to analyze the barriers in the implementation of the Framework Convention on Tobacco Control (FCTC) in China and present recommendations on ways to address these challenges in tobacco control in China.

Methods: We review the available literature on progress and explore the barriers and challenges that impede a speedier pace in the adoption of the effective tobacco control measures, and present recommendations based on in-depth knowledge of decision-making process on the implementation of FCTC in China.

Results: The pace of progress in China is too slow. China faces intractable political, structural, economic and social barriers in tobacco control, which make the wholehearted implementation of FCTC measures a painstaking process.

Discussion: The authors recommend a comprehensive approach to speed up the implementation of tobacco control measures. This includes strong political leadership from the top, structural changes to the tobacco industry and government oversight of the tobacco industry, as well as advocacy and support for tobacco control from civil society at the grassroots level. (Global Health Promotion, 2014; 20(4): 13–22).

The following sections are included:

• DISSEMINATION OF POLICY RESEARCH FINDINGS
• POLICY BRIEF SUBMITTED TO THE PRESIDENT'S OFFICE
• POLICY ADOPTION
• THE WAY FORWARD
• REFERENCES

The following sections is included:

• Index