The economic cost of smoking to China exceeded 70 billion yuan last year, creating what one critic called a country "with the biggest tobacco problem in the world."

The government should cut consumption by raising the cost of cigarettes, now only at 5 yuan (US.76¢) per packet of 20, which would guarantee its tax revenue, according to a report by the country's tobacco control lobby titled "Tobacco Control and China's Future. The report was written by Yang Gonghuan, vice director of the China Center for Disease Control (CCDC), and Hu Angang, Director of the Centre for China Study at Qinghua University and the China Academy of Social Sciences, and was posted on the CCDC website.

It is a direct attack on the State Tobacco Monopoly and China National Tobacco Company, which has just announced record results. In 2010, the state-owned concern's profits reached 604.5 billion yuan, up from 253 billion in 2006, and taxes paid to the state rose to 498.8 billion yuan from 194.4 billion.

The report said that the health costs of treating tobacco-related illnesses exceeded tax revenue from tobacco for the first time in 1999 and the deficit has been increasing each year since then, reaching 70 billion yuan last year.

"Tobacco-related medical expenditures and loss of productivity are increasing by the year at an expanding rate. The integrated benefit analysis shows that the net benefit generated by the tobacco industry is already below zero," it said.

Currently, 1.2 million people die annually of tobacco-related diseases, of whom a third are aged between 40 and 69. "Tobacco-attributable deaths are estimated to account for 25 percent of total deaths among those aged 40 or older. Among cerebra-vascular patients who survive a stroke, three of four have lost some of their ability to work, with 40 percent suffering severe disabilities. Tobacco smoking has become the top killer of the Chinese population."

The report proposed a 20-year plan to bring out a gradual change in smoking habits. This would include raising taxes on cigarettes, which would cut consumption but maintain government revenue.

"150 million, 50 percent of smokers, buy one pack of cigarettes for five yuan or less and the expenditure for 100 packs occupied merely two percent of per capita GDP in 2009," the authors wrote. By contrast, a pack of cigarettes in Hong Kong costs HK$50 (US$6.41). In New York, Mayor Michael Bloomberg has pushed the price of cigarettes to US$11 per packet of 20.

Last year, more than 300 million of China's 1.3 billion people were recorded as smokers, almost the same as in 2002. Among men, the proportion of smokers last year among workers was 68 percent, farmers 60 percent, civil servants 52 percent, medical professionals 40 percent and teachers 38 percent.

Beijing ratified the World Health Organization's Framework Convention on Tobacco Control (FCTC), which came into force in 2005, but has failed to meet its commitments under the convention, including a pledge to ban smoking from all indoor public areas.

"China is doing poorly in implementing the FCTC with a performance score of only 37.3 of 100 possible points," the report said. "The intervention of the tobacco industry is the underlying cause of the poor impact of tobacco control. It has distorted the Chinese version of FCTC, denied the scientific conclusions of the health hazards of smoking and claimed smoking as smoker's rights.

"It has abused the public powers of government to counteract tobacco control policies, used 'low tar and low harm' marketing strategies to mislead the public and encouraged tobacco consumption through disguised advertising and marketing effects of sponsorship and promotion."

A survey of adults in China last year found that more than 75 percent did not know the health hazards of smoking and more than two thirds did not know the hazards of second-hand smoking.

The report proposes a restructuring of the government, so that the department that includes the tobacco industry cannot take any responsibility for tobacco control. It recommends the establishment of a National Tobacco Control Bureau in the National Development and Reform Commission to take charge of comprehensive tobacco control nationwide.

"Public agencies are the largest buyers of premium cigarettes, a situation that has to be changed to earn people's trust in anti-corruption. Chinese Communist Party and government officials, civil servants and employees of public agencies must take the lead to ban smoking in public and work places. The government should develop regulations explicitly banning public agencies purchasing cigarettes with public funds and accepting them as gifts and should encourage and protect whistleblowers."

Growers of tobacco leaf should be encouraged, through subsidies and other policies, to switch to alternative crops or move into other kinds of work, the report adds. "Assistance should be offered to the wholesale, monopoly and retail businesses to switch. Provinces highly reliant on the tobacco industry should be subsidized with funds from the central government during the transition period."

The document was prepared with help from a panel of 28 experts, 19 Chinese and nine foreign. They include Professor Lam Tai-hing, professor of the school of public health of the University of Hong Kong, and Dr Judith Mackay, senior advisor to the World Lung Foundation.

"What needs to be done, what is effective in reducing tobacco use – especially price policy and legislation – is very well known, and if China wishes to protect the health of its people, now is the time to implement these measures," Mackay said.