Despite global trends and anti-smoking efforts, China's state-owned tobacco industry is thriving.

• In fiscal year 2023, China's tobacco industry, controlled by state-owned China Tobacco, generated approximately 1.5 trillion yuan ($210 billion) in revenue, representing a 4.3% increase from the previous year — six times the net revenue of Philip Morris International, the second-largest tobacco company.
• Thanks to favorable policies and connections with regulators, the company has experienced growth, as per researchers and anti-smoking advocates.
• The company is also increasingly working to make inroads in new international markets.

Despite global smoking trends declining, cigarette sales are increasing in China, driven by the largest tobacco company that is largely unknown to the public.

Despite being relatively unknown abroad, China Tobacco has become the largest cigarette producer globally due to its near monopoly on China's tobacco product sales.

Euromonitor data indicates that retail cigarette sales in China have been steadily increasing over the past four years, reaching 2.44 trillion sticks in 2023. The research group predicts that sales will continue to grow annually, reaching 2.48 trillion by 2028.

The rise in popularity of "slim" cigarettes, marketed as "low-tar" and featuring various flavors, has contributed to the growth observed by Euromonitor.

Despite a global decline in cigarette sales over the past decade, the rise of e-cigarettes and smokeless tobacco products, driven by China Tobacco, is fueling new trends in the tobacco industry.

Nearly a third of the world's total smokers are in China, which has more than 300 million smokers, according to the World Health Organization.

Despite Beijing's pledges to reduce smoking rates, there has been no significant impact on tobacco sales.

In fiscal year 2023, China's tobacco industry generated approximately 1.5 trillion yuan ($210 billion) in revenue, representing a 4.3% increase from the previous year. It is estimated that China Tobacco accounts for 97% of the country's tobacco production and sales.

In 2023, Philip Morris International, the world's second-largest tobacco company, generated a net revenue of $35.2 billion.

'Conflict of interest'

The World Health Organization Framework Convention on Tobacco Control has significantly decreased global tobacco use, particularly in affluent nations, according to experts who spoke to CNBC.

According to Gan Quan, senior vice president of the tobacco control department at Vital Strategies, progress in tobacco control is often hindered by industry influence on government policy.

The company was established in 1982 with the objective of centralizing the tobacco industry under government control.

As per Quan, China's STMA plays a direct role in establishing tobacco control policies in the country. Consequently, China Tobacco operates as both a corporation and a regulatory body for the Chinese tobacco market, resulting in a clear conflict of interest.

He stated that China Tobacco has been leveraging its insider position and exerting its influence within the government to hinder the implementation of tobacco control measures.

By 2014, the company had over 500,000 employees and controlled 33 provincial tobacco regulatory offices, 57 cigarette factories, and over 1,000 other small commercial enterprises.

According to Bath University, the company is estimated to contribute up to 12% to China's tax revenue.

According to Judith Mackay, director of the Asian Consultancy on Tobacco Control, the perception that tobacco farming is crucial to farmers and that tobacco tax is a significant contributor to the national economy are obstacles to stricter government regulation.

China Tobacco and its Hong Kong-based subsidiary did not respond to an inquiry from CNBC.

Global expansion

Jennifer Fang, a research fellow and project manager at the Pacific Institute on Pathogens, Pandemics and Society, stated to CNBC that China Tobacco's monopoly status has contributed to its rapid growth in the domestic market, due to the country's large population of smokers and the absence of competition from Western brands.

China Tobacco licenses brands such as Phillip Morris' Marlboro for sale in China.

Due to its domestic market focus, China Tobacco has largely been overlooked by tobacco control research, which has primarily focused on transnational tobacco companies known as "Big Tobacco," according to Fang.

The research on China Tobacco from 2016 to 2020 revealed that the company was expanding globally under Beijing's "One Belt, One Road" initiative, but faced challenges such as a saturated market and stricter tobacco regulation at home.

Fang stated that as of 2019, China Tobacco had expanded its global presence to 20 countries, with 34 off-shore facilities, including sales offices, manufacturing plants, and specialized tobacco procurement companies.

This trend appears to have continued in recent years based on Chinese exports.

In 2023, China's tobacco exports reportedly experienced strong growth, reaching $9.173 billion, up 22.2% from the previous year.

Recently, China Tobacco International (HK) underwent an important expansion by going public on the Hong Kong Stock Exchange in June 2019.

Since its Hong Kong debut, the company's stock has increased by over 376%. This year, it has risen nearly 160%.

The IPO's objective was to fund market growth in CNTC's target markets and form strategic partnerships with other cigarette companies, as stated by an analyst in Tobacco Control prior to the IPO.

According to Mackay of Asian Consultancy on Tobacco Control, China Tobacco aims to emulate the success of international tobacco corporations such as Philip Morris International and British American Tobacco.

"The ultimate aim is to increase sales of cigarettes or nicotine products, which is the objective of every tobacco company," she stated. "The consequences can only be negative."

— CNBC's Sonia Heng and Evelyn Cheng contributed to this report