Rong ZHENG WHO Tobacco Control Collaboration Center, University of International Business and Economics (UIBE), Beijing, China

1. Introduction Figure 1: Cigarette consumption in China

2. Literature Review Methods of defining cigarette affordability: Scollo (1996) and Lal and Scollo (2002) “Relative price of cigarettes expressed in Big Mac terms” Guindon et al. (2002) Minutes of Labor (MoL) Blecher et al. (2004) Relative Income Price (RIP) Kan (2007) Cigarette price/daily income ratio (CPDIR) Measuring the magnitude of cigarette affordability change Hu et al. (2008) cigarette affordability index (CAI) Measuring the growth rate of cigarette affordability WHO (2015) compared growth rates of cigarette affordability among selected countries between 2008 and 2014 U.S.NCI &WHO 2016 compared 49 countries between 2000 and 2013

3. Objectives of the study Examine cigarette affordability level, trend, magnitude of change, and growth rate in China Estimate the correlation between cigarette affordability and cigarette consumption in China Identify the level and the growth rate of cigarette affordability in China from a global comparison perspective Explore tobacco tax policy implications for Chines tax policy makers

3. Objectives of the study: Particular attention given to low income groups and rural dwellers

4. Sources and Methods (1) RIP method: RIP= 100×P Disposable Income per capita 1 (2) IPC method: IPC= Disposable Income per capita P 2 (3) CAI method: CAI t = RIP 2001 RIP t , where t = 2001, 2002…2016 (3) CAI t = IPC t IPC 2001 , where t = 2001, 2002…2016 (4) Price data sourced from WHO TaXSiM China model; Income data are from National Bureau of Statistics of China.

5. Results: Cigarette affordability on average Table 1: Cigarette affordability on average: RIP average, IPC average and CAI average Year Weighted average price (RMB/pack) Per capita disposable income nationwide (RMB) RIP average (%) IPC average (Packs) CAI average 2001 4.12 4058.52 10.15 985 1.00 2002 4.32 4518.90 9.56 1046 1.06 2003 4.61 4993.22 9.23 1083 1.10 2004 5.04 5644.62 8.93 1120 1.14 2005 5.63 6366.57 8.84 1131 1.15 2006 6.25 7210.91 8.67 1154 1.17 2007 6.43 8566.60 7.51 1332 1.35 2008 6.14 9938.92 6.18 1619 1.64 2009 6.71 10964.57 6.12 1634 1.66 2010 7.27 12507.58 5.81 1720 1.75 2011 9.33 14581.95 6.40 1563 1.59 2012 10.27 16668.53 6.16 1623 1.65 2013 10.80 18310.76 5.90 1695 1.72 2014 11.61 20167.12 5.76 1737 1.76 2015 12.81 21966.19 5.83 1715 1.74 2016 13.09 23821.00 5.50 1820 1.85

5. Results: Cigarette affordability of cheap brands Table 2: Cigarette affordability of cheap brands: RIP cheap brands, IPC cheap brands and CAI cheap brands Year Cheapest category price (RMB/pack) Per capita disposable income of rural households (RMB) RIP cheap brands (%) IPC (Packs) CAI 2001 1.20 2366.40 5.07 1972 1.00 2002 2475.60 4.85 2063 1.05 2003 2622.20 4.58 2185 1.11 2004 2936.40 4.09 2447 1.24 2005 1.40 3254.90 4.30 2325 1.18 2006 3587.00 3.90 2562 1.30 2007 2.00 4140.40 4.83 2070 2008 2.50 4760.60 5.25 1904 0.97 2009 5153.20 2061 2010 5919.00 3.38 2960 1.50 2011 6977.30 3.58 2791 1.42 2012 7916.60 3.16 3167 1.61 2013 9429.59 2.65 3772 1.91 2014 10488.88 2.38 4196 2.13 2015 3.00 11421.71 2.63 3807 1.93 2016 12363.00 2.43 4121 2.09

5. Results: Cigarette affordability trends presented by RIP method

5.Results: Cigarette affordability trends presented by IPC method

5.Results:Why cheap brands are more affordable than the average in China ?

5.Results: The average and the cheap brands present trends differently, reasons behind?

5. Results: Annual growth rates and fixed-base growth rate of cigarette affordability for the average

5. Results: Annual growth rates and fixed-base growth rate of cigarette affordability for the cheap brands

5. Results: Correlation between cigarette affordability and income change, price change

5.Results: The Affordability Elasticity of Demand The theory of price elasticity of demand The Affordability Elasticity of Demand ln consumption t =α+β ln RIP t + ε t 5 On average, the estimated affordability elasticity of demand in China is -0.60, suggesting that a 10 percent increase in cigarette affordability will bring a 6 percent increase in cigarette consumption.

5.Results: The correlation of affordability elasticity and cigarette consumption

5. Results: Global Ranking of Cigarette Affordability

5.Results from other studies: Growth rate of Cigarette Affordability China’s cigarette affordability has surged with the fastest growth rate in the world Figure 13: Percentage Change in Cigarette Affordability, by Country Income Group, 2000–2013 Source: The Economics of Tobacco and Tobacco Control, National Cancer Institute Tobacco Control Monograph 21.

5.Results from other studies: Growth rate of Cigarette Affordability China’s cigarette affordability has surged with the fastest growth rate in the world Figure 14: Change in affordability of cigarette between 2008 and 2014, selected countries Source：WHO report on the global tobacco epidemic, 2015: raising taxes on tobacco.

6. Conclusions (1) Cigarettes have become more affordable between 2001 and 2016 because the income increase outpaces the price increase. Average price cigarettes are 1.85 times more affordable in 2016 than in 2001 Cheap brands cigarettes are 2.09 times more affordable in 2016 than in 2001 The cheap brands cigarettes have been more affordable than the average between 2001 and 2016 because the cheap brands prices are extremely low (2) Changes in cigarette affordability drives changes in cigarette consumption over time. A 10 percent increase in cigarette affordability will result in a 6 percent increase in cigarette consumption in China (3) Its current level of cigarette affordability makes China the 45th-most-affordable country for cigarette smoking among 168 countries. In just two decades, China has moved from the fourth-quartile affordable-country group to the second-quartile affordable-country group China’s cigarette affordability has surged with the fastest growth rate in the world.

7. Policy implications There’s ample room to increase tobacco tax and price in China Raise the specific tax substantially, set up minimum price Shift from price-based policy solutions to affordability-based policy solutions, with the aim of making cigarettes less affordable Introducing index management by considering affordability in benchmarking excise tax increases.

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