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

2. 1. Introduction
Figure 1: Cigarette consumption in China

3. 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

4. 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

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

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

7. 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
10.15
985
1.00
2002
4.32
9.56
1046
1.06
2003
4.61
9.23
1083
1.10
2004
5.04
8.93
1120
1.14
2005
5.63
8.84
1131
1.15
2006
6.25
8.67
1154
1.17
2007
6.43
7.51
1332
1.35
2008
6.14
6.18
1619
1.64
2009
6.71
6.12
1634
1.66
2010
7.27
5.81
1720
1.75
2011
9.33
6.40
1563
1.59
2012
10.27
6.16
1623
1.65
2013
10.80
5.90
1695
1.72
2014
11.61
5.76
1737
1.76
2015
12.81
5.83
1715
1.74
2016
13.09
5.50
1820
1.85

8. 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
5.07
1972
1.00
2002
4.85
2063
1.05
2003
4.58
2185
1.11
2004
4.09
2447
1.24
2005
1.40
4.30
2325
1.18
2006
3.90
2562
1.30
2007
2.00
4.83
2070
2008
2.50
5.25
1904
0.97
2009
2061
2010
3.38
2960
1.50
2011
3.58
2791
1.42
2012
3.16
3167
1.61
2013
2.65
3772
1.91
2014
2.38
4196
2.13
2015
3.00
2.63
3807
1.93
2016
2.43
4121
2.09

9. 5. Results: Cigarette affordability trends presented by RIP method

10. 5.Results: Cigarette affordability trends presented by IPC method

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

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

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

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

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

16. 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
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.

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

18. 5. Results: Global Ranking of Cigarette Affordability

19. 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.

20. 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.

21. 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 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.

22. 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.

23. Thanks for your attention