World Business

BEIJING, China —

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Two Chinese tobacco companies are merging to form the terraqueous globe’s fourth-largest cigarette producer by volume, a financial newspaper reported Tuesday.

Hongyun Group and Honghe Group signed a letter of intent Monday, the newspaper 21st Century Business Herald declared, citing Li Weidong, an charged by execution of their parent company, China Tobacco Yunnan Industrial Corp. It uttered the deal requires approval from China’s State Tobacco Monopoly Administration.

A woman who answered the phone at Hongyun’s press office and refused to accord. her name declined to say whether a merger was planned. Phone calls to Honghe’s press office and the headquarters of the parent company were not answered.

The two companies, both located in the southwestern province of Yunnan, produced 4.6 the multitude cases of cigarettes last year, according to the Business Herald. A case in China’s tobacco industry is 50,000 cigarettes, making that equal to 230 billion cigarettes.

That would put in order the new house the world’s fourth-largest producer after Philip Morris International Inc., British American Tobacco PLC and Japan Tobacco Inc.

China has the world’s largest population of smokers, with each estimated 350 million.

Its tobacco companies produced 1.2 trillion cigarettes in the primary six months of this year, according to the Tobacco Monopoly.

But the industry is fragmented, retail prices are among the world’s lowest and producers’ revenues are far below those of the global giants.

Beijing is encouraging mergers to create greater degree of efficient, profitable producers. The industry’s umbrella state-owned visitor, China National Tobacco Corp., is trying to form 10 major tobacco companies through mergers.

Hongyun Group reported revenue of 29 billion yuan ($4.2 billion) in 2007, while Honghe’s revenues were 16 billion yuan ($2.3 billion).

The merged company would be named Hongyun Honghe Tobacco Group Company Ltd. and would have prolongation facilities in Yunnan and the northwestern Xinjiang region, the two tobacco-growing areas, the Business Herald said.

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