Where there’s smoke, there’s smuggling. Before the Ukrainian border became a dangerous war zone, it was a profitable bootlegging arena. ... In 2008 Ukraine, the international cigarette companies that control 99 percent of the cigarette market there manufactured and imported 130 billion cigarettes. And for a country that adores smoking like few others—according to the Tobacco Atlas, the average Ukrainian in 2008 smoked 2,526 cigarettes—you’d have to assume that all 130 billion would be gobbled up by the populace. You wouldn’t expect, however, that nearly 25 percent of them were not. ... Officially, according to the four leading international cigarette companies in Ukraine—Philip Morris International, Japan Tobacco International, Imperial Tobacco, and British Americano Tobacco—30 billion cigarettes were “lost.” The reality was that these cigarettes were sold wholesale to international cigarette traffickers. According to Tobacco Underground, a group of journalists determined to uncover the rampant cigarette smuggling throughout the world, cigarettes are the most smuggled legal substance on earth.
A conglomerate on the order of the old Gulf + Western, China National runs more than 160 cigarette brands, manufactured in about 100 factories across the country, and uses its earnings to invest in banks, luxury hotels, a hydroelectric plant, a golf course, and even drugmakers. Most of its money goes to its owner, the Chinese government; the tobacco industry accounts for about 7 percent of the state’s revenue each year, and China National controls as much as 98 percent of the market. All told, the industry in China employs more than 500,000 Chinese. They are among roughly 20 million people who get some income from tobacco, including members of 1.3 million farming households and workers at 5 million retailers, according to government figures. The extent to which the government is interlocked with the fortunes of China National might best be described by the company’s presence in schools. Slogans over the entrances to sponsored elementary schools read, “Genius comes from hard work. Tobacco helps you become talented.” ... While the growth of its cigarette production has slowed, the company is making more money than ever in the same ways its Western competitors do: by pushing premium brands. Some are low-tar, some are organic, and some feature tobacco from American farmers, whose fortunes have risen along with the demand from China. But China National is being challenged as never before. Faced with a mounting death toll from smoking-related diseases, the Chinese government in the last year has issued a flurry of anti-tobacco edicts and proposed reforms.
Smoking rates were in decline among well-educated consumers in developed economies; to make up for slipping sales, the companies were raising prices, which they could do for only so long. Meanwhile, a growing number of customers were switching to e-cigarettes in the hope of escaping their addiction or preserving their health. The devices, which use battery-powered coils to vaporize nicotine-infused solutions, had leapt on the scene seemingly out of nowhere. One of the first commercially available e-cigarettes had been created circa 2003 as a smoking cessation device by a Chinese pharmacist whose father had died of lung cancer. By 2013 the e-cigarette market had $3.7 billion in annual sales, according to Euromonitor International, and was expanding rapidly. ... Philip Morris International scrambled to fashion newfangled nicotine-delivering devices that would catch the wandering eye of the restless tobacco consumer. ... Everywhere you look in the industry, companies are pouring money into product development while borrowing liberally from the style of Silicon Valley. ... Tobacco executives often sound like media owners talking about content. That is, they’re open to delivering their drug via whatever pipe the consumer chooses—be it e-cigarettes, heat-not-burn devices, gum, lozenges, dip, or some medium that hasn’t been invented yet.