Silver lining behind China's output slide: People are smoking less

[BEIJING] Lost amid the angst over a marked slowdown in China's industrial output is a welcome silver lining: people are smoking less.

Some of the decline is down to a crackdown on the habit. The government more than doubled the consumption tax on cigarettes in May, while the capital city Beijing banned smoking in all indoor public spaces and some outdoor areas in June.

Taxes paid by manufacturers are also steadily increasing (see chart). Meantime, the ongoing anti-corruption campaign has curbed the old practice of giving cigarettes as gifts to officials. Tobacco is more expensive too - prices gained 6.3 per cent in February from a year ago while total consumer prices increased 2.3 per cent.

The result: value-added from the tobacco sector slumped 15.6 per cent from a year earlier in January and February combined, stubbing out 0.7 percentage point from overall industrial output. Industrial production climbed 5.4 per cent from the same period in 2015 - the slowest start to a year since 2009.

The volume of cigarettes sold last year dropped 2.4 per cent and production declined 0.9 per cent, according to the State Tobacco Monopoly Administration, which runs the China National Tobacco Corp., producer of 97 per cent of China's cigarettes.

Even still, taxes paid jumped.

To be sure, seasonal factors may have also had an impact as the weeklong Chinese New Year holiday and factory shutdowns distorts the data.

But if Chinese people really are smoking less, that could be bad news for the tobacco industry, which hires about 510,000 nationwide, and for regions such as southwest Yunnan province, whose fiscal system depends heavily on tobacco tax receipts. For the nation as a whole though, it may mean saving billions of dollars in health costs.

BLOOMBERG