Battle for deposits forecast to intensify

RHB Research said that with digital banks poised to launch operations in the months ahead, it will be interesting to note how conventional banks react to the attractive deposit rates these new entities are expected to offer.

PETALING JAYA: As competition for deposits intensifies in the months ahead, one research house has bucked the trend by downgrading its outlook on the banking sector. It believes that competition for deposits could intensify towards year-end although pressure on net interest margins (NIMs) and operating expenditure may abate.

RHB Research commented that overall, banks have recorded decent second-quarter (2Q23) results, but they may not see a repeat of the hefty income in the first half of the year (1H23) from treasury and markets.

It said that with digital banks poised to launch operations in the months ahead – as exemplified by GX Bank (GXB) which began operations on Sept 1 – it will be interesting to note how conventional banks react to the attractive deposit rates these new entities are expected to offer.

RHB Research said in a note published yesterday that the revised guidance on NIMs would imply that banks are expecting 2H23 NIMs to be stable versus that of 1H23, or slightly better, while remaining watchful of loans exiting relief programmes for both the retail and small-medium enterprise or SME segments.

“For now, we forecast 2024 sector earnings growth to revert to the trend growth rate of 6% to 7% year-on-year (y-o-y), in line with our forecast corporate earnings growth of 7% to 8% y-o-y for 2024,” it said.

The research house pointed out that the banking sector has rallied by 8% since end-1H23 and by 9% since the 1Q23 results season, compared with 6% for the FBM KLCI, underpinned by the banks’ earnings holding up relatively better against the broader market.

It added: “Investors have started to look ahead towards NIM stabilisation – given that 1Q23 was likely the worst quarter in terms of NIM pressure. Also, 2Q23 earnings met expectations, while the declaration of interim dividends helped further support share prices, in our view.”

Meanwhile, casting a glance at Singapore’s GXS Bank Pte Ltd to ascertain what its subsidiary GXB would offer, RHB Research reported that GXS started off last year by offering depositors 0.08% interest in its regular savings and an additional 3.48% for its “saving pockets” accounts.

Calling GXS’ deposit account a “fuss-free product”, the research house commented, “Apart from offering better rates than some high interest savings accounts, the features that made GXS’ deposit product attractive were no minimum deposit amount, no maintenance fees and no tiered interest rate structure.”

The research unit added that the deposit account was well-received, and was followed up with the launch of micro loans, given the bank’s focus to render services to the underserved or unbanked segments such as gig economy workers and small businesses.

It revealed that in 2Q23, GXS began offering instant micro loans that the bank’s app users could apply for with ticket sizes from S$200 with tenures as short as two months, as interest rates start from 3.8% per annum.

As such, RHB Research is of the opinion that the features of GXB’s deposit product could be similar to that of GXS, while also expecting it to be similarly well received.

“That said, given the RM3bil cap to asset size during the foundational phase, the potential deposits that could migrate from conventional banks to digibanks should not be material, perhaps less than 1% of total deposits in the initial years,” it said.

It added that there had not been any significant deposit competition among Singapore banks last year as well.

Moreover, the research outfit said given the estimated deposit market share up for grabs in the Malaysian banking sphere, deposit competition should likewise be under control. “The key question is whether incumbent banks will stay rational,” it said.

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HEALTHY SOIL FOR HEALTHY PLANTS FOR HEALTHY HUMANS

 

Source: HEALTHY SOIL FOR HEALTHY PLANTS FOR HEALTHY HUMANS | Universiti Putra Malaysia

NIMP 2030 Sets Breakthrough Agenda, poised to attract more investments

 

INDUSTRIAL MASTER PLAN

PM Launches Malaysia’s 4th Industrial Master Plan

IT is a pivotal moment for Malaysia’s industrial development.

Malaysia’s manufacturing sector has to accelerate the Fourth Industrial Revolution, taking advantage of smart technologies to move its production base up the value chain while conforming to environmental, social and governance and meeting net-zero target.

Amid increasing geo-economic complexity and the escalating impact of climate change, Malaysia needs a new generation of sustainable industrial transformation to lever up the economy to sustain resilient and competitive advantage internationally.

The manufacturing sector remains one of the primary engines of growth (2022: 24.1% of gross domestic product or GDP: 84.2% of total exports and 16.8% of total employment) and had expanded at steady rate of 4.8% per annum in 2015-2022 (4.9% per annum in 2011-2015).

The New Industrial Master Plan (NIMP) targets to increase the manufacturing sector’s value-added by 6.5% per annum to RM587.5bil by 2030 (RM364.1bil in 2022); employment growth of 2.3% per annum to 3.3 million in 2023 (2022: 2.7 million persons); while median salary will increase by 9.6% per annum to RM4,510 in 2030 (2021: RM1,976).

The country has prematurely deindustrialised since early 2000s, mainly due to increased global competition and slow progress in moving up the value chain.

Malaysia’s Economic Complexity Index ranking (24th in 2021), which indicates the productive capability of an economy, was lagging behind advanced economies (first for Japan, fourth for South Korea and sixth for Singapore); other developing regional peers are fast catching up (29th for Thailand); and labour productivity growth has moderated and stagnated (2.3% per annum in 2013-2022).

Our regional peers are receiving more foreign direct investment (FDI) inflows in recent years.

During the period 2017-2022, Malaysia registered FDI inflows of US$9.4bil per year compared to US$96.4bil per year for Singapore, US$20.9bil per year for Indonesia and US$15.8bil per year for Vietnam.

The Philippines is catching up fast (US$9.2bil per year) while Thailand’s FDI has dwindled to US$7.1bil per year.

The NIMP 2030 sets the breakthrough agenda for Malaysia’s manufacturing sector’s next take-off in the new green industrial age.

The NIMP maps out a comprehensive industrial direction, strategies and enablers with the aim of positioning Malaysia for new growth catalytic sectors and industries in the decades ahead.

The NIMP 2030 calls for a “Whole-of-Nation” approach and adopts a mission-based approach to drive the manufacturing transformation in four ways:

> Advancing economic complexity,

> Tech-up for a digitally vibrant nation,

> Pushing for the net-zero target, and

> Safeguarding economic security and inclusivity.

The master plan will chart a new generation of sustainable industrial policies, underpinned by four enablers, 20 strategies and 56 action plans.

Domestic manufacturing industries have to strengthen their resilience and competitiveness to counter operational challenges caused by geo-economic conflicts that disrupt supply chains, resource scarcity that threatens energy and utilities security, and adverse climate change disruptions.

The identified five pivotal sectors are:

> Electrical products and electronics,

> Chemical and chemical products,

> Advanced materials,

> Aerospace, and

> Healthcare (including medical devices and pharmaceuticals).

All industries will be driven strategically to embrace these four missions for reconstructing and developing a solid and sustainable manufacturing sector and also for exporting resilience.

The services sector must also move up the value chain to support the manufacturing sector.

While the lead agencies and parties involved were identified to implement the mission-based projects, accountability and responsibility are therefore critical to ensuring a successful implementation of the mission-based projects.

We need a strong accountability to ensure alignment and coordination among the stakeholders and parties to clearly define the project scope and deliverable.

Roles and responsibilities across ministries on investment issues tend to be unclear and sometimes lack co-ordination.

Hence, an effective implementation of a one-stop centre is a crucial investment facilitation mechanism whereby relevant ministries and government agencies are coordinated at a single point to provide prompt, efficient and transparent services to investors to shorten and simplify administrative procedures and guidelines ultimately, thereby removing bottlenecks faced by both local and foreign investors in establishing and running businesses in Malaysia.

Investment climate reforms are necessary. While the government has made efforts on transparency, the rule of law, weeding out corruption and strengthen the quality of institutions, they have not been sufficiently consistent to improve investor confidence and ensure responsible business practices by both foreign and domestic companies.

The government has to bolster collaborations between the federal government, state governments and local authorities to facilitate investment.

We support the Investment, Trade and Industry Ministry’s efforts to streamline the 31 Investment Promotion Agencies, with the Malaysian Investment Development Authority leading the way.

Domestic direct investment (DDI), especially by micro and SMEs (MSMEs), are crucial for supporting industrial ecosystem.

The inclusion of DDI as a key performance indicator is a positive step to facilitate and raise the quality of domestic investment.

MSMEs should be provided with opportunities to gradually scale up their industries through horizontal and vertical integration as well as to embrace green practices.

This necessitates capital investment in advancing technological and digitalisation capabilities, ensuring an ample supply of highly skilled and knowledge-based human capital, and more importantly, access to financing, grant and development fund.

It is estimated that a total of RM95bil will be invested throughout seven years to implement NIMP, predominantly coming from the private sector.

We support the action plans to mobilise the financing ecosystem (financial institutions and capital market), including the introduction of the NIMP Strategic Co-Investment Fund and NIMP Industrial Development Fund to support strategies, action plans and mission-based projects as well as for industries and businesses, especially MSMEs.

However, the NIMP did not provide an estimation of the amount of financing and funds needed to support the industrial transformation.

As SMEs often encounter challenges in accessing financial resources and credit facilities, it is therefore necessary to broaden the range of financing instruments available to SMEs and entrepreneurs, by improving understanding about a full range of financing instruments they can access in varying circumstances, and by encouraging discussions among stakeholders about new approaches and innovative policies for SMEs and entrepreneurship financing.

For SME green facilitation, we proposed:

> The creation of a web-based tool in partnership between the industry associations and environmental regulator to provide free environmental guidance to SMEs; and

> The provision of an ESG assessment toolkit to guide SMEs embark on their ESG journey by identifying gaps in their management system based on the 12 ESG indicators identified.

Manpower and integration with technology is integral for the industrial transformation. Swift action must be taken to review and address the manpower planning and development programmes.

These include the supply of skilled manpower; adaption; and reskilling and upskilling of workers that are future proof, including the hiring of foreign talent to supplement domestic pool of workforce.

The quality assurance of Technical and Vocational Education Training has to be revamped and enhanced.

We support the implementation of the multi-tier levy model to reduce over-dependency on low-skilled foreign workers, but the levy must not be too steep during the transition period as it would be significantly burdening the employment and operating costs of MSMEs.

The implementation of Progressive Wage System on a voluntary basis and incentive-based approach for MSMEs for the skill set categories along with the minimum wage must be productivity-linked.

We support the action plans to drive promotional activities of Free Trade Agreements (FTAs), including the Regional Comprehensive Economic Partnership (RECP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and export consortia, given the low utilisation rate and awareness among the business community.

We propose:

> The design of a tariff finder to support traders to maximise benefits from the RCEP and CPTPP to help businesses, to get up-to-date information on the preferential tariffs and the rules of origin criteria used to determine a product’s eligibility for preferential tariff treatment, and

> The setting up of a one-stop advisory centre for all FTA-related enquiries from businesses; gather feedback on tariffs and non-tariffs issues for better trade and investment facilitation.

Strategic planning is hard but the real challenge is execution. Without a careful and planned approach to execution, strategic goals cannot be attained.

Hence, we need a pragmatic approach to monitor and track the progress of the proposed action plans and mission-based projects; and make timely interventions and facilitation across collaborations between ministries and agencies as well as provide resolutions to achieve the deliverables.

- Lee Heng Guie is Socio-Economic Research Centre executive director. The views expressed here are the writer’s own.

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NIMP 2030 Sets Breakthrough Agenda For Manufacturing ...

NIMP 2030 poised to attract more investments

PETALING JAYA: The current investing focus on environmental, social and governance (ESG) and sustainability will likely help the New Industrial Master Plan 2030 (NIMP 2030) attract further targeted investments into the country.

The plan also appears to aim to capitalise on the opportunities from the recent shift in investments away from China due to the global trade tensions.

According to CGS-CIMB Research, the NIMP 2030 is a comprehensive plan, noting that the government appears to understand the limitations and hurdles of the current industrial setting such as the reliance on cheap foreign labour and low research and development adoption.

“If this strategy works, ESG-conscious companies could be more interested in investing in Malaysia such as Tesla.

“We also see a new set of industries being emphasised, in particular electric vehicles (EVs) and carbon capture, utilisation and storage, which capitalise on Malaysia’s existing strength and advantages,” CGS-CIMB Research said.

However, it also noticed certain sectors were receiving less emphasis than in previous plans such as biotechnology, although pharmaceutical, a subset of biotechnology, was highlighted in the report.

“A few policy suggestions in the NIMP 2030 are not new, for instance, the multi-tier levy system for foreign workers, which has been delayed, given the pushback by industry players. Hence, successful execution is key,” it said.

“Thus far, the NIMP 2030 certainly improves the long-term prospects for gross domestic product (GDP) growth, but we maintain our 2023 GDP growth forecast at 4% year-on-year and 4.6% in 2024,” the research house added.

Meanwhile, UOB Kay Hian (UOBKH) Research said it believes the electrical and electronics (E&E) industry is poised to be the largest beneficiary of the plan.

“The NIMP 2030 is a catalyst for trade diversion for foreign direct investment, the creation/entrenchment of regional champions, and new emerging industry clusters such as EV and renewable energy (RE),” UOBKH Research said.

It noted the E&E industry, which accounts for some 40% of the country’s exports, is poised to grow further from the NIMP 2030 catalyst.

“The well-strategised plan targets to enhance the sector’s value-add, employment and wage dynamics by deepening the economic complexity of the supply chain, upskilling and support for small and medium enterprises,” UOBKH Research said.

“While we await the granularity of incentives and rollouts, our top manufacturing picks include Cape EMS Bhd, Inari Amertron Bhd and NationGate Holdings Bhd,” UOBKH Research said.

These companies are noted for their alpha growth on strong visibility of better order loadings from their new and key customers from the supply chain reconfiguration amid the trade diversion, it said.

For the outsourced semiconductor assembly and test players, it likes Inari for its strong growth trajectory premised on its new flagship programme, inventory replenishment and the fruition of its new business collaboration.

Other companies such as Greatech Technology Bhd are noted for their solid order-book backlogs with more than 50% exposure to the high-margin EV and RE sectors alongside their unique value proposition while other beneficiaries include packaging company L&P Global Bhd, it said.

Meanwhile, Hong Leong Investment Bank Research said the NIMP 2030 is a positive move, but noted the key to its success will depend on the strong cooperation across multiple key stakeholders that cuts across federal and state governments as well as agencies.

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NIMP 2030 is the ‘key to the future’

• 

  NIMP 2030 is the ‘key to the future’

    PM: Reshaping of skills, jobs, wages will expand middle class KUALA LUMPUR: High-value job opportunities are among the focuses of t...

Watch out for new mutant strain, Omicron Subvariant BA.2.86, nicknamed Pirola

PETALING JAYA: The BA.2.86 subvariant of the Covid-19 virus, known as Pirola, has not landed in Malaysia yet but this newly-detected, highly-mutated variant of Omicron has raised concerns in countries such as the United States and Britain.

Public health expert Datuk Dr Zainal Ariffin Omar said the BA.2.86 subvariant was highly infectious and could easily spread.

As such, he urged the public to get a booster shot and complete their recommended vaccination schedule.

Universiti Kebangsaan Malaysia professor of public health Prof Dr Sharifa Ezat Wan Puteh said the subvariant might be potentially more transmissible because its spike protein could undergo up to 30 mutations.

However, she said some experts were of the opinion that it might just pass us by without having a significant effect.

“Treatments such as antivirals like Paxlovid are still efficacious with current strains. Even if people get reinfected by BA.2.86, the immune memory will still allow their immune system to kick in and control the infection far more effectively as many have received their booster doses.

“The current advice is still the same – get your boosters, wear masks in public spaces, wash your hands and maintain good ventilation. It is expected that new vaccines against the new strains will be available soon,” added Prof Sharifa Ezat.

Universiti Putra Malaysia’s associate professor of virology Dr Chee Hui Yee said it was still too early to conclude how dangerous the subvariant was as only some 31 genomic sequences of the Pirola variant had been recorded with the Global Initiative on Sharing All Influenza Data.

“Close monitoring and observation are needed and I would like to suggest for Malaysia to do whole genome sequencing on more recent samples to track the variant,” she said.

“We can live our lives as usual, but take more precautions when travelling overseas.”The subvariant has also been found in wastewater samples in several countries, including Britain and Thailand.

First found in Denmark in July, the subvariant has also been detected in South Africa, Portugal, Thailand, Sweden, Switzerland and Canada.

The United States is also expecting updated versions of Covid-19 vaccines that have been tweaked to enable the body to ward off the current variants. In the meantime, Britain is fast-tracking its flu and Covid-19 vaccination drive for care home residents and those immunocompromised as a precautionary measure.While studies are ongoing to ascertain the traits and the effects of Pirola, sore throat, cough, headaches and a runny or blocked nose are said to be some of the symptoms.

On Aug 30, the US Centers for Disease Control and Prevention (CDC) said it was monitoring the Pirola variant, adding that it was still too soon to ascertain its impact and degree of transmissibility.Based on an examination of Pirola’s mutation profile, the CDC said treatments such as Paxlovid, remdesivir and molnupiravir would be effective.

In the Yale Medicine Bulletin published on Aug 31, infectious disease specialist Dr Scott Roberts said the strain had been detected in at least six countries and that the cases were unrelated.

This, he said, suggested that there was some degree of transmission in the international community that had not been detected.Dr Roberts said with a greater degree of herd immunity as a result of infection and vaccination, the world was not as vulnerable to severe illness or infection from the coronavirus as it was at the height of the pandemic in 2020.

“Since the original version of SARS-CoV-2, many people have got infected, and many have been boosted. However, for many of us, it might have been a year or more since we’ve had a booster, so I would encourage everyone to get the updated shot, which is expected to come out in mid-September,” he added.

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NIMP 2030 is the ‘key to the future’

 

PM: Reshaping of skills, jobs, wages will expand middle class

KUALA LUMPUR: High-value job opportunities are among the focuses of the newly launched New Industrial Master Plan (NIMP) 2030 as Putrajaya seeks to expand the middle class, says Prime Minister Datuk Seri Anwar Ibrahim.

He said global trends such as the rising role of IR4.0 technology, climate change and sustainability practices, demographic shifts and the globalisation of value chains are changing the nature of jobs.

ALSO READ: Govt urged to do its share

“Skills transformation is key to developing future competencies and this has been set as a focus of our industrial strategy,” he said when launching the NIMP 2030 at Menara Miti here yesterday.

Anwar said the NIMP 2030 will see the implementation of a progressive wage system that promotes skill development and career advancement.

ALSO READ: Manufacturing sector set to get a boost

“Public-private collaborations will be enhanced in the TVET (Technical and Vocational Education Training) and STEM (Science, Technology, Engineering and Mathematics) programmes, ensuring the acquisition of skills required by the industry,” he added. Anwar said the government’s Economy Madani framework and NIMP 2030 are both aligned in their focus on improving the lives of the people through projected higher returns from the national economic targets.

“This includes employment with meaningful wages and wealth-sharing to build a more equitable and prosperous society,” he said.

Anwar also said employment will see a projected growth of 2.3% from 2023, which is set to provide employment for 3.3 million people by 2030.

ALSO READ: ‘Whole of nation’ approach to drive manufacturing

“The industry’s growing employment trajectory is due to the creation of high-skilled jobs as the country advances towards higher value-added activities and via improvements in automation and technological advancements,” he added.

Most importantly, said Anwar, through interventions under NIMP 2030, the median salary for the manufacturing sector is expected to grow to reach RM4,510 from RM1,976, which is below the national average.

“This 128% increase from 2021 will be driven by the shift of the industry towards higher value-added activities and the high-skilled job opportunities being created,” he said.

Anwar also said the NIMP 2030 will create more opportunities for local small and medium enterprises (SMEs) to grow through specific action plans. He said SMEs in manufacturing currently contribute only 8% to the GDP (gross domestic product) and 9% to exports.

For a more prosperous society: Anwar (centre) launching the NIMP 2030. He is flanked by Deputy Prime Minister Datuk Seri Dr Ahmad Zahid Hamidi (left) and Tengku Datuk Seri Zafrul. — Bernama

“There is a lot of potential to grow our SMEs in manufacturing, in line with our Economy Madani aspiration to strengthen firms of all sizes,” he said, adding that the plans to develop SMEs’ capacities will enable them to be positioned higher in the global value chain.

“This, in turn, will help them scale up into mid-tier companies that could help Malaysia make more foreign exchange earnings.”

Anwar also said he was made to understand that the International Trade and Industry Ministry will launch a new framework in a few weeks to build SMEs’ environmental sustainable goals (ESG) capacity.

“This is important to ensure SMEs’ continued participation in ESG-compliant multinational vendor ecosystems and continued access to ESG-sensitive export markets,” he added.

The NIMP 2030 outlines Putrajaya’s plans to transform Malaysia into a high-tech, industrialised nation.

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US seeks more stable China business landscape

Relationship reset: Raimondo (centre) visiting Boeing Shanghai Aviation Service Co. In her meetings with Chinese officials, she raised the issue of unfair trade practices. — AFP

Shanghai: The United States wants to work with China to ensure a more “predictable” environment for American businesses in Shanghai, Commerce Secretary Gina Raimondo told officials in the economic hub yesterday.

Speaking with Shanghai Communist Party chief Chen Jining on day four of a bridge-building trip to China, Raimondo said a “stable economic relationship is good for America, good for China and good for the world”.

“The US-China economic relationship is among the most consequential in the world,” she told Chen.

Raimondo told Chen she was looking forward to talks to “bring about a more predictable business environment, predictable regulatory environment, and a level playing field for American businesses here in Shanghai”.

US firms in China have long complained about what they see as an unfair business environment, with limited protection for intellectual property and preferential treatment afforded to domestic competitors.

Those fears have been compounded this year by a broad crackdown on US consulting firms operating in China.

A new anti-espionage law, which came into force on July 1, has also spooked foreign and domestic firms as they try to decipher authorities’ intentions and, crucially, pinpoint what is off-limits.

In a Tuesday meeting with Vice Premier He Lifeng in Beijing, Raimondo raised what Washington sees as unfair trade practices by China, according to a US Department of Commerce statement.

She also emphasised the “importance of strengthening the protection of trade secrets for US businesses operating in China”.

The commerce secretary is one of a number of senior US officials to visit China in recent months – part of an effort by Washington to improve its working relationship with its largest strategic rival.

Raimondo has used the trip to seek more open discussions with the Chinese over restrictive trade curbs and the two sides have agreed to set up a working group to iron out the laundry list of trade disputes between them. — AFP

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‘Politicians, not vernacular schools, causing national disunity’

 

Malaysia celebrates 66th anniversary of independence -

PETALING JAYA: It is not vernacular schools causing national disunity, but politicians like Tun Dr Mahathir Mohamad, says Sungai Buloh MP Datuk R. Ramanan.

The Malaysian Indian Transformation Unit (Mitra) Special Committee chairman said it was most regrettable that Dr Mahathir had to resort to a seditious statement in calling for the abolishment of vernacular schools recently.

At 98 years old, Dr Mahathir should play the role of bringing Malaysians together instead of creating division, said Ramanan, who is also PKR deputy information chief. As such, he urged the former prime minister to “stop his continuous inflammatory statements which bring no value to national unity”.

Ramanan also pointed out that unlike private schools, vernacular schools funded by the Federal Government have existed since our independence and are part of the national school system.

“The Chinese primary schools, for example, have over 100,000 Malays, Indians and other bumiputras, and like Indian primary schools, they play a major role in nation-building.

“I invite Dr Mahathir to visit these schools for himself and see their contribution to national unity in their programmes and syllabus,” said Ramanan in a statement yesterday.

He also said that some of the best talents have graduated from these primary schools and are occupying high positions in the government and private sector.

As a result of the existence of these schools, Malaysians have been able to have a grasp of Mandarin and Tamil, which are linguistic assets, said Ramanan.

“One reason why Malays and Indians are sending their children to these vernacular schools for six years of primary education is because they want their children to learn Mandarin or Tamil,” said Ramanan.

He added that with China and India being major economies, Malaysians who are able to speak these languages are marketable and sought after.

Ramanan also said that Bahasa Malaysia is also highly emphasised in these schools.

“It’s unfortunate that Dr Mahathir has chosen to see everything from a racial angle to ensure that he is in the news,” he said, while also questioning if Dr Mahathir’s grandchildren attended private or international schools or studied in national schools.

Ramanan said he was initially very hesitant to respond to Dr Mahathir’s remarks about abolishing vernacular schools, but felt that a rebuttal was necessary to put the record straight.

“It is most unfortunate that Dr Mahathir still refers to Malaysians who are not Malays as pendatang (immigrants) as we celebrate the nation’s 66th anniversary.

“Let me quote American civil rights leader, Martin Luther King Jr, who said ‘we all come in different ships but we are in the same boat now’.

“That is the destiny of all Malaysians, regardless of our race and religion,” he said.

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Malaysia celebrates 66th anniversary of independence - Xinhua

Dr M calls parties led by non-Malays 'parti pendatang'

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300 million smokers and counting

hoices aplenty: Cartons of cigarettes are considered appropriate business gifts. — The Straits Times/ANNTwenty years after adopting the World Health Organisation (WHO) Framework Convention on Tobacco Control (FCTC), China is still addicted to cigarettes.

The world’s largest producer and consumer of tobacco, it has an estimated 300 million smokers, nearly a third of the world’s total.

Despite years of anti-smoking campaigns – Chinese President Xi Jinping reportedly gave up smoking in his 40s and banned smoking in government buildings – many continue to light up, driven by social mores, cheap cigarettes, a lack of public education and, crucially, the protection of Big Tobacco.

Cartons of smokes are considered appropriate business gifts while tobacco shops dot the streets, with prices ranging from as little as 10 yuan (RM6.40) a packet to over 200 yuan (RM127.70). Convenience stores prominently display a dizzying array of varieties.

But kicking the habit is far harder than simply going cold turkey. The tobacco industry is both regulated and controlled by the State Tobacco Monopoly Administration (STMA), an agency that provides jobs for over half a million people across the country.

In recent years, the problem has taken on a new dimension with the startling popularity of electronic cigarettes, making nicotine palatable – and readily available – even to the young.

How did the world’s second-largest economy get so addicted to smoking? And as the world moves towards tobacco-free societies, would it ever be truly possible for China to kick the habit?

Cigarette normalisation

Shortly after the establishment of the People’s Republic of China in 1949, Beijing declared that tobacco farms and cigarette manufacturing would be consolidated and managed by local governments.

When the country was put through rationing in those early years, cigarettes were among the “essentials” doled out to villagers and residents who registered with the local authorities, allowing officials to document the population.

Cigarette manufacturers also tapped iconography significant to China’s national consciousness. Brands like Xiongmao (Panda), Chunghwa (a metonym for China) and Zhongnaihai (a former imperial garden that now houses China’s leadership complex) all date back as far as the 1930s.

By the time STMA and its commercial arm China National Tobacco Corporation were created in the 1980s to consolidate and centralise tobacco production and sales, smoking was widely accepted.

Leaders ranging from Mao Zedong to Premier Zhou Enlai and Deng Xiaoping have all been photographed holding cigarettes, with ashtrays and spittoons commonplace in offices and government buildings across the country.

And it continues to play a significant role in society today.

When bistro owner Jeanne He was a bridesmaid in 2022 at a childhood friend’s wedding in Yunnan province – the country’s largest producer of tobacco – she had an important responsibility.

“I was in charge of arranging the cigarettes on trays for bridesmaids to hold up and offer to guests before the wedding dinner,” she said.

“The groomsmen had trays of snacks and candy.”

In much of China, working in the tobacco industry is seen to be as prestigious as being in the civil service, with its stable income, generous salaries and employee benefits.

In surveys of fresh graduates, China’s big tobacco firms – largely state-owned enterprises (SOE) – are consistently rated some of the best companies to work for, with degree holders happy to take on blue-collar jobs on the factory lines.

Some 98% of China’s tobacco firms are SOEs with little wiggle room for other market players. Manufacturing some 2.4 trillion cigarettes a year, the industry raked in 132 billion yuan in profits in 2022, nearly 12% up from the 118 billion yuan the year before.

China National Tobacco Corporation does not report sales figures but posted a record-breaking taxable income of 1.44 trillion yuan in 2022.

The second-highest tax payer, the Industrial and Commercial Bank of China, reported taxable income of 109 billion yuan.

The pressure that STMA exerts on the government is largely why tobacco regulation has hit a roadblock, said Dr Gan Quan, director of the China office of the International Union Against Tuberculosis and Lung Disease, a Paris-headquartered non-profit organisation aimed at eradicating tuberculosis and lung disease.

While major cities such as Beijing, Shanghai, Guangzhou and Shenzhen have been able to completely ban smoking indoors since 2007, this has been far more challenging in other cities like Chongqing.

In 2020, the city passed a law banning smoking in public places, but a loophole meant that certain establishments such as restaurants, hotels and entertainment venues were allowed to set up indoor smoking areas, exposing countless others to second-hand smoke.

“Smoking is strictly prohibited in the indoor areas of public places where smoking areas can be designated,” said the text of the law.

Dr Gan, who has spent his career studying China’s tobacco control policies, said: “It has become a pattern that whenever sub-national jurisdictions try to pass smoke-free laws, you have the STMA following them (to exert pressure to water down the laws) because they don’t want the momentum to spread from big cities like Beijing and Shanghai.”

Crucially, there is no national-level smoke-free legislation that will make it mandatory for all provinces and regions to adhere to, wrote Peking Union Medical College’s Dr Xia Wan in CCDC Weekly, a publication by the Chinese Centre for Disease Control and Prevention, in an article in 2022.

In November 2014, the State Council released a draft on national tobacco control guidelines to meet its obligations under the WHO FCTC, the first time such guidelines had been introduced at a national level.

“This draft was supposed to finish seeking advice, opinions and comments from the public by the end of 2014,” Dr Xia wrote.

“But unfortunately, the draft is still stuck in that stage and has not progressed further.”

Furthermore, regulation across cities remains lax, and it is not an uncommon sight to see people lighting up under “no smoking” signs in eateries.

STMA did not respond to a request for comment.

In 2021, China’s top health body, the National Health Commission, released its second report detailing the ill effects of smoking – an update from a 2012 version.

With more than half the male population smoking, over one million people lose their lives to tobacco use every year, a number that could double by 2030.

It also noted that “e-cigarettes are unsafe and pose a health hazard” but offered no solutions to the issue.

Electronic cigarettes

Electronic cigarettes and electronic nicotine delivery systems – more commonly known as vapes – have been regulated in China since 2022, and cartridges with flavours have been banned in a bid to stop young people from picking up smoking.

But results are mixed: While such vapes are no longer easily available, one can still walk up to any number of e-cigarette shops dotting the streets, where retailers pull out flavoured stock from under the counter.

In private chats on social media platform WeChat, sellers also directly market to consumers, sending catalogues every time a new flavour hits the market.

At a shop in Beijing, where this reporter was offered an ice lemon tea-flavoured vape, the shop assistant said it was impossible to stamp out demand.

“We’re just more discreet about it and don’t display what we have on offer. Also, if we see young people coming in to buy, we won’t sell to them,” said the assistant, who wanted to be known only by her surname Su.

In eateries and even shops across major cities, people can still be seen puffing away indoors, leaving cloyingly sweet vapour in their wake.

With smoking so socially accepted, those who have successfully quit say it usually takes a life-changing event to provide a much-needed jolt.

Aircraft engineer Li Peng, 52, kicked the 30-year habit only after discovering nodules in his lungs during a medical check two years ago.

“I’ve been smoking since I was a young apprentice nearly 30 years ago, and even though my wife kept urging me to quit, I found it hard because it’s such a social activity, too,” he said.

“After the medical scare, where the doctor told me I could either quit or risk it developing into something more severe, I got the boost I needed to go cold turkey.

“But I’ll admit it was very difficult in the beginning, especially during mornings in the toilet.”

Yet, given the industry’s strong hold over the market, China is unlikely to go cold turkey any time soon.

Dr Gan said: “The anti-smoking lobby is calling for the tobacco monopoly to be broken up from the regulator, but I don’t think the government is willing or interested in doing that because it takes huge political will and capital.”

Since 2021, STMA has been swept up in a corruption probe that has involved nearly two dozen current and former senior executives, including the retired head of an Anhui subsidiary who killed himself after investigations started.

The arrests and investigation of several top STMA officials for corruption are merely part of the anti-corruption campaign rather than an attempt to reform and rein in the tobacco industry, Dr Gan noted.

“The main issue is really a lack of (anti-smoking) education... for instance, if you compare cigarette packets to places like Hong Kong and Singapore, the language is very weak and not prominently displayed,” he said.

“And we don’t do that because of opposition from the tobacco monopoly.” — The Straits Times/ANN

The writer,ELIZABETH LAW  is the China Correspondent at The Straits Times.

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