China Tobacco: The world’s most profitable company you’ve never heard of

Last year, China’s private sector shrank as a share of the economy for the first time in seven years. As state-owned enterprises return to the spotlight in Xí Jìnpíng’s 习近平 “new era,” it’s time to get acquainted with their mysterious frontrunner: China Tobacco 中国烟草.

• China Tobacco is the most profitable company in the world. It is the largest tobacco manufacturer, accounting for 40% of the world’s total cigarette consumption. It also moonlights as the state tobacco regulator, an arm of China’s powerful industry watchdog. The SOE-watchdog duo takes up 98% of China’s tobacco market while also setting its own rules, an arrangement similar to if the SEC and Goldman Sachs were one institution in the United States.
• China Tobacco logged a record $214 billion in profits in 2021, more than double global top-earner Apple’s $94 billion. The tobacco giant usurped all other Chinese SOEs such as State Grid ($11 billion) and Sinopec ($9 billion) and Chinese private companies Alibaba ($38 billion) and Huawei ($17.8 billion).
• Nonetheless, China Tobacco is practically invisible to the foreign eye. It does not appear in the revenue-based Fortune 500 list — or any major corporate size-based list for that matter — because it does not publicize financial data beyond profits. Its corporate governance structure is also unique: Unlike other SOEs, it is not supervised by the State Council’s State-owned Assets Supervision and Administration Commission, but reports to the Ministry of Industry and Information Technology.

The context: Established in 1982, China Tobacco was tasked with managing the production, sales, import, and export of cigarettes for the whole country. The behemoth now employs 510,000 employees and controls 33 provincial tobacco watchdog bureaus, 57 cigarette enterprises, and more than 1,000 other small commercial businesses.

• China’s state-owned enterprises have been in the news of late. Apart from their increasing role in China’s structural reforms, some are now in the hot seat due to their ties with Russia. The state-owned system has also recently become an attractive refuge for burned-out Chinese seeking a more stable, less demanding lifestyle — an outgrowth of the “involution” and “lying flat” movements of recent years.
• China Tobacco is widely regarded as the best SOE to work for in this high-pressure climate. The company has a workplace reputation among SOEs akin to Google in tech or McKinsey in consulting. Its recruitment process is hyper-competitive, it offers the best benefits, and it is famously regarded as “too big to fail” (永不破产): 90% of China Tobacco’s profits go to Beijing, which means that last year 13% of China’s total tax revenues ($1.44 trillion) came from tobacco sales.
• China Tobacco has played a role in Beijing’s private sector crackdowns. In late November, the State Council amended a law that put e-cigarettes under the tobacco giant, effectively handing over e-cigarette sales volumes and price decisions to the state. This devastated the industry: RELX Technology, the promising e-cigarette startup that went public in New York last January at a $35 billion valuation, is now worth $2.5 billion.

The takeaway: China Tobacco remains a mystery to the outside world despite employing half a million Chinese, and being one of China’s largest tax generators. As China’s state-owned companies grow in attention, the ties between China and its tobacco manufacturer can shed light on many decisions, including the fate of the e-cigarette industry, the development of tobacco agriculture, and the pace at which Chinese smoking habits change.