Chapter 1 for Poisonous Pandas

Chapter One

Cigarettes in the Communist Base Areas during World War II

Liu Wennan

When hosting guests, I boil water, but don’t offer tobacco;
I use my clothes and bedding for three years;
I use one mu of land for cultivating tobacco as my contribution to the public;
And I pay for a few pickles with my own income.

“Ode to Austerity,” by Lin Boqu, chairman of the Shaan-Gan-Ning Border Region government, 1944

A few years before the start of the Second Sino-Japanese War (1937–1945), Mao Zedong and his Communist troops were in full retreat. Chiang Kai-shek’s Nationalist soldiers had forced the Communists to flee, driving them on the Long March from southern locales to remote regions in the center of China. Where the Red Army took refuge became known as the Communist base areas. There, for over a decade, Mao’s troops regrouped and launched guerilla attacks, while the Chinese Communist Party (CCP) tested new forms of governance and economic self-reliance. The most important base area, the Shaan-Gan-Ning Border Region, stretched across three different provinces (Shaanxi, Gansu, and Ningxia) and was centered on the town of Yan’an. The reader should keep in mind that this border region was barren and drought-ridden, with little in the way of modern infrastructure. Most people lived under rudimentary conditions; even Mao himself, like several of his lieutenants, slept in a cave-style dwelling. (The region became first known to a wide English-language audience through Edgar Snow’s book Red Star over China and Agnes Smedley’s China Fights Back: An American Woman with the Eighth Route Army). It was in Yan’an that the CCP set up its wartime capital; it was also in that setting that the CCP first experimented with the production and regulation of cigarettes.¹

This chapter chronicles cigarette manufacturing and management in Yan’an and its environs in these crucial years after the Long March. Why did the CCP strive to supervise cigarette-making and trade in such an inhospitable locale? How did base area authorities integrate the making and regulation of cigarettes into new forms of governance? What lasting knowledge was gained, and what principles of nation building were defined by the party through these experiments?

Before the Communists’ arrival in Yan’an, the smoking of loose-leaf tobacco was already a part of everyday life for many locals in the Shaan-Gan-Ning Border Region (SGNBR). At the outbreak of war with Japan in 1937, the SGNBR economy was heavily dependent on the Guomindang government, insofar as many of its resources had to be imported from areas controlled by Nationalist armies. In the wake of the 1941 Wannan Incident, which shattered a brief and tenuous Communist-Nationalist anti-Japanese alliance, the Guomindang imposed a strict economic blockade on the SGNBR, which led to severe financial and economic hardship for the CCP’s new headquarters. In response, the Communist government adopted a policy of economic self-reliance, which included the funding and management of factories to fabricate various types of goods.

Yan’an’s Communist authorities underwent a paradigm shift regarding cigarettes during World War II. Originally, they had often criticized cigarettes as an unnecessary extravagance and a drain on the regional economy. Gradually, however, the party came to view cigarettes as a vital economic tool. The promise was that local cigarette production would provide a crucial economic boost, allowing the party to generate revenue and quash inflation. This paradigm shift helped normalize cigarette smoking as a respected Communist activity, respect that would spread throughout China once the People’s Republic was founded.

The health effects of tobacco were rarely if ever questioned in the base areas, with smoking instead imagined as a psychic salve for war-torn nerves, a reward to be savored, a relaxation tool and hoped-for feature of the good life to come once a new China was built. Tobacco products in general and cigarettes in particular concerned the SGNBR government only insofar as they influenced the economy, a view that endures to a large extent to this day. All policies regarding cigarettes in the SGNBR—taxation schemes, bans on exogenous brands, and promotion of government-owned and -directed cigarette manufacturing—were centered on this perception of the cigarette as an economic good, a good that could impede or enhance the goals of Communist economic self-reliance.

Making and Smoking Tobacco in the SGNBR

During the Anti-Japanese War, the CCP controlled the northcentral portion of the agricultural plateau, a region comprising northern Shaanxi, eastern Gansu, and southeastern Ningxia formed by wind-blown soil deposits. By 1939, the area under the CCP’s control encompassed 99,000 square kilometers, with a total population of 1.5 million.² Geographically speaking, the region was vast, sparsely populated, and inaccessible. Agriculture was the economic mainstay, but farming technology was backward and the soil was poor. Before the Anti-Japanese War, the region had practically no modern industry, and even Yan’an, the largest city in the region, could only boast a smattering of handicraft industries. Consequently, “the entire regional economy was impoverished and sealed off from the outside world.”³

After the CCP established its political base in the SGNBR, it used political campaigns and land reform to promote agricultural production. At the same time, it gradually experimented with industries such as textiles, chemicals, military equipment, machinery, and paper manufacturing, aided by technically skilled émigrés and intellectuals who had escaped from enemy-occupied territory. In spite of these efforts, the economic picture changed little: traditional agriculture continued to dominate with industry lagging behind. As a result, Communist authorities in the SGNBR were extremely dependent on the outside world, and had to trade salt, furs, licorice, and other local produce for textiles, medicines, and other necessities. Trade between the SGNBR and the outside world led to what economists call an urban-rural price scissors problem: low-value raw materials and agricultural products were exported in exchange for high-value industrial goods, causing a flow of wealth from the countryside to the cities. In 1941, cooperation between the Guomindang and the CCP ended with the Wannan Incident—when armed conflict between Nationalist and Communist forces broke the united front against Japanese occupation—and the Guomindang imposed an economic blockade on Communist base areas. This caused a severe shortage of industrial products in the SGNBR, but it also caused its trade deficit to grow uncontrollably.⁴ It is only by considering this economic backdrop that we can understand the production, consumption, and management of tobacco in regions controlled by the young Chinese Communist government.

As in much of rural China, in the SGNBR the most widely smoked form of tobacco before the Anti-Japanese War was shag, also known as rolling tobacco. Shag could be produced as a supplement to mainstream agricultural activities: one could easily satisfy one’s own tobacco needs by growing a little on the edge of one’s fields for example.⁵ In addition to shag, the middle and upper levels of SGNBR society often grew water-pipe tobacco. After the outbreak of war in 1937, the demand for cigarettes rose dramatically in the Communist base areas, as outsiders poured in, bringing their more cosmopolitan tastes with them. Intellectuals, military officials, and refugees from the more prosperous coastal regions of China formed a new cadre of cigarette smokers in the SGNBR.⁶

Shag tobacco, water-pipe tobacco, and cigarettes were seen as reflections of the cultural background and social status of their consumers. Shag tobacco, usually made from sun-dried homegrown leaves, had a pungent taste but was cheap and easy to produce, even at home. It was popular among lower-middle-class farmers. By contrast, water-pipe tobacco was more arduous to produce (involving destemming, perfuming, and curing), making it more expensive. To smoke water-pipe tobacco, one has to regularly rinse the tobacco pot, and the process of loading and lighting is more elaborate than with a normal pipe. The upper-middle classes in Late-Imperial China tended to prefer using the water-pipe.

Cigarettes were introduced to China at the end of the nineteenth century, and within a few decades they had become a fashionable way to consume tobacco in major coastal cities. Unlike shag and water-pipe tobacco, cigarettes were viewed as modern industrial artifacts. Cigarettes are often made from Virginia tobacco, which is flue-cured to reduce the harsh sting from the nicotine, making it easier especially for novices to inhale the resulting smoke. Cigarette paper is also machine-made, allowing cigarettes to be wrapped tightly and uniformly with little smoke released upon burning. Cigarette rolling machines dramatically improved production speed and efficiency, but they also increased cigarette consistency, turning cigarettes into an affordable mass-market product. From a consumer perspective, cigarettes were easy to carry and to light, and provided milder smoke than other forms of tobacco. Cigarettes became integral to a fashionable lifestyle, a notion conveyed by the energetic promotion of manufacturers. Cigarettes quickly cut a swathe among the young and people with a bit of money in urban centers.

From 1937 to 1939, the SGNBR was a place of pilgrimage for patriotic youth, as swarms of urban intellectuals made the journey to Yan’an. Many of these youths were smokers, as were many of the senior leaders of the CCP, who had acquired the habit when they lived in cities—Mao Zedong is perhaps the most famous example. These people formed the primary cigarette market within the SGNBR. Prior to the Guomindang’s imposition of an economic blockade, the region had obtained most of its cigarettes from neighboring Guomindang-controlled areas, though some had been obtained from Japanese-occupied territories. According to a survey conducted in Yan’an in December 1941, the biggest sellers were lower-end Virginia-style domestic brands like Daxihu, Huashan, and Siling.⁷

The SGNBR’s backward, preindustrial economy was largely dependent on external connections. Cigarettes, the style of tobacco preferred by government workers, patriotic youth, and war refugees, could only be obtained via trade with the outside world, aggravating the already serious trade deficit. As the Guomindang tightened its economic blockade of the SGNBR during 1941, the cost of imported goods soared. Between 1938 and 1941, the price of cigarettes brought in from cities skyrocketed from 0.1 yuan per pack to an average of 4 yuan per pack. A pack of ten Daxihu or Huashan cigarettes went for 5 yuan in 1941, while a pack of Siling went for 2 yuan. This contrasts with the cost of local cut rolling tobacco, which remained steady at around 0.35 to 0.4 yuan per 50 grams, roughly the weight of leaf in two or three packs of machine-rolled cigarettes.⁸ It was within this context that the SGNBR Trade Bureau decided to ban the import of cigarettes, a step taken on December 15, 1941.

Prohibition of Cigarette Imports

Prior to banning cigarette imports, the SGNBR government had tried to stifle them with high taxes. On September 29, 1941, the government raised the sales tax on non-SGNBR tobacco products to 40 percent for cigarettes and 20 percent for water-pipe tobacco and other styles of prepared tobacco.⁹ The high tax rate evidently did not produce the desired effect, as cigarette imports still exceeded ten million yuan in 1941.¹⁰ As the Nationalists continued tightening the economic blockade, the SGNBR Trade Bureau began to swap surplus rural products for essential or irreplaceable items and to restrict the import of objects used in religious ceremonies (such as incense and candles). But “luxuries” such as cigarettes, alcohol, and soap were also on the hit list.¹¹ At its third administrative meeting toward the end of 1941, SGNBR leaders accepted a Trade Bureau proposal to outlaw the import of cigarettes. New government guidelines not only criminalized the import of cigarettes, but also barred shops from selling them. Shopkeepers found in violation would have their cigarettes confiscated and could be fined up to five times the value of the tobacco. What is interesting about these regulations is that they targeted only cigarettes from outside the SGNBR, while water-pipe tobacco, shag, and locally produced and processed leaf were not prohibited.¹² This demonstrates that leaders did not intend to outlaw tobacco use; rather, they aimed to alter its method of consumption, by promoting local tobacco products as a replacement for imported machine-made cigarettes.

At first, the ban on the sale of cigarettes was poorly enforced. Some shops continued selling cigarettes, prompting the Yan’an City Tax Bureau to launch an inspection of over a hundred stores in March 1942, resulting in the confiscation of 2,289 cartons of cigarettes (a “carton” at that time was 500 cigarettes). An unnamed “state-run shop” was found to have hoarded the largest quantity of unregistered cigarettes, accounting for more than 90 percent of the total.¹³ State-run shops were income-generating schemes begun after 1940 by the army, public schools, and other government organs. That they flouted the ban on cigarette imports and sales illustrates how different branches of government pursuing their own financial interest can hinder policy implementation. An even more glaring example involves the SGNBR’s Department for the Management of the Import-Export of Goods and Materials. Well after the ban began, the agency continued to surreptitiously traffic in cigarettes, even down to the subdistrict level. The agency’s abuse explains why this initial ban was ultimately a failure, and illustrates how easily gatekeeping prerogatives can upend prohibition.¹⁴ Nonetheless, at least publicly, the government championed the ban during the early 1940s, as we see in a call to arms published in the Liberation Daily during April 1942. Penned by the bureaus of Trade, Public Security, and Taxation, the article applauds the ban for having raised the street price of cigarettes.¹⁵ It emphasizes the ban’s economic importance, and orders all merchants to hand in their remaining stock by April 10.¹⁶

After the article’s publication, the ban seems to have been strengthened, probably due to enhanced involvement of the Pubic Security Bureau. Or perhaps this only seems to be true in retrospect, given that the archives offer few reports about black market cigarettes during this period.

What we certainly find is a mixture of government bromides and self-serving pronouncements by individual leaders of their personal sacrifice. On January 15, 1943, the General Office of the CCP Central Committee issued an edict that “all state-run shops and state employees in the SGNBR should boycott imported cigarettes in favor of selling and consuming locally produced cigarettes.”¹⁷ The chairman of the SGNBR government, Lin Boqu, set the tone in his belt-tightening plan, published as the lead article on the front page of Liberation Daily on January 28. His plan included the statement that “from January 25, 1944, I will abstain from smoking imported cigarettes.” He even penned a poem to encourage belt-tightening: “When hosting guests, I boil water, but don’t offer tobacco; I use my clothes and bedding for three years; I use one mu of land for cultivating tobacco as my contribution to the public; and I pay for a few pickles with my own income.”¹⁸ Gao Gang, CCP party secretary for the Northwest Bureau and speaker of the SGNBR Senate, published his own austerity plan in Liberation Daily on February 5. The plan also included a line about “smoking shag tobacco instead of cigarettes in the future.”¹⁹

But these testimonials could not stanch the ongoing supply of and demand for imported cigarettes. The Tax Bureau was powerless to control smuggling by profit-seeking government departments. And without any strong regulations regarding smuggling, there was nothing to quash demand from the market, which tended to push prices up as supply diminished, which in turn increased the lure of black marketeering. This was arguably the main reason why this Communist ban on cigarettes was short lived.

However ineffective the ban, it is worth reemphasizing the terms of its promulgation. The goal was not to protect health, even though evidence suggests that at least some of the SGNBR’s leaders knew something even then of cigarettes’ pathogenic effects. Rather, the ban’s logic was entirely economic:

Cigarettes are not essential for life, and are of no beneficial effect to the individual’s health; in fact they are a tremendous waste of money. . . . At a time when the Anti-Japanese War is entering its most difficult stage, and the entire nation is economizing to save itself from destruction, the patriotic, democratic SGNBR must immediately abolish the import of cigarettes in order to curtail futile expenses, to balance the trade deficit, to control financial difficulties brought about by the Anti-Japanese War, and to strengthen ourselves for the struggle.²⁰

On the same page as this announcement, the Liberation Daily published an article titled “End the Cash Draining-Cigarettes—18 million.” This was an appeal to the public to modify its behavior. Readers were not, however, urged to stop smoking. Instead they were simply encouraged to switch from cigarettes to pipes, and from imported to local tobacco.²¹ Tobacco smoking was treated as normal, even desirable.

When considering the involvement of Communist base areas in normalizing tobacco use, it is important to keep in mind that, given the dire straits of the SGNBR economy at this time, few people had enough cash to buy cigarettes with any frequency. Soldiers and peasants did not earn much money, so they usually could only afford locally grown shag. Rank-and-file party cadres, thanks to their cash subsidies, were bigger buyers of cigarettes. And of course, many a SGNBR leader smoked cigarettes. Mao Zedong was a big cigarette smoker, but so too were Lin Boqu, the chairman of the SGNBR government, and Gao Gang, the speaker of the Senate.²²

In other words, if you were well-heeled or powerful, you likely smoked not just tobacco but some of the imported cigarette offerings readily available, making cigarette consumption all the more a mark of special privilege in the base areas. Arguably the regulatory rhetoric at the time—the proscription of imports in particular and the affirmation of smoking more generally—only served to reinforce the cachet of cigarettes.

From Prohibitive Taxation to Total Prohibition—and Monopoly

In June 1943, the SGNBR government changed course again in its experimentation with tobacco management. Leaders dropped the ban on imported cigarettes and issued a new set of regulations. These regulations were designed to suppress consumption of imported cigarettes through heavy taxation. Rescinding the ban was an acknowledgment that prohibition had reduced tax revenue while also fueling a black market. The about-face may also have reflected an acknowledgment of the improving market conditions during early 1943. Campaigns to promote production of various goods were beginning to pay off.

As Table 1.1 shows, SGNBR’s authorities were especially interested in cigarettes. By June 1943, in fact, the SGNBR had started to produce its own cigarettes. And to encourage success, SGNBR cigarettes were taxed at a lower rate than imported brands. So eager were leaders to promote local cigarette manufacturing that they set relevant taxes roughly on par with levies on shag and water-pipe tobacco.

It was around this time that the SGNBR tried to establish a monopoly over two profitable products of a recreational nature: tobacco and alcohol. The aim was to create a system incorporating the entire supply chain, from sourcing raw materials to manufacture and sale.

The design of the monopoly, at least in terms of tobacco, was riddled with flaws from the start. One flaw involved ownership structure. Although labeled a monopoly, the system issued stock, with a capital value of eight million yuan divided into eight thousand shares, each of which had a face value of one thousand yuan. The SGNBR Finance Department was responsible for buying half of these shares, while the other half could be purchased by other government units or individual SGNBR citizens. If insufficient shares were sold, the Finance Department would be tasked with purchasing the rest. Provisional Regulations for the SGNBR Alcohol and Tobacco Monopoly stipulated that shareholders should be able to withdraw half their dividends by installments during a certain period of time, and that 40 percent of the total revenue should be turned over to the government’s Finance Department as income.²³

Although superficially resembling a modern corporation, the state-run monopoly was expected to operate with little regard for market logic. One can see this again in the monopoly’s Provisional Regulations. In an effort to guarantee profits, the regulations authorized the government to dictate manufacturing targets, to fix retail prices (at 20 percent over the wholesale price), and to ensure shareholders huge annual dividends.²⁴ By failing to consider factors such as product quality and market demand, and by making unrealistic plans on the basis of guaranteed profits and dividends, the monopoly immediately foundered in the face of rampant cigarette smuggling carried out by army personnel and public employees.

TABLE 1.1

Tax rates for entry, transit, and production of tobacco products in the SGNBR, June 1943

SOURCE: “Shaan-Gan-Ning bianqu yanlei zhengshui zhanxing tiaoli” [SGNBR Provisional Regulations for Tobacco-Based Products] (June 12, 1943), in Shaan-Gan-Ning geming genjudi gongshang shuishou shiliao xuanbian [Collection of historical documents on taxation of industry and trade in the SGNBR], ed. Shaan-Gan-Ning geming genjudi gongshang shuishou shi bianxiezuo [Writing group of the history of taxation of industry and trade in SGNBR] and Shaanxi sheng dang’an’guan [Shaanxi provincial archives] (Xi’an: Shaanxi renmin chubanshe, 1986), vol. 4, 149.

Another flaw from the outset was a lack of capital investment. The nascent SGNBR cigarette industry could only produce tiny volumes, most of which were manufactured by hand. Moreover, the monopoly used tobacco leaves and wrapping papers of poor quality. Overall, SGNBR-manufactured cigarettes had little chance of competing against cigarettes made by manufacturers outside the region.

This experimental monopoly system had an even harder time after the SGNBR’s ban on imported cigarettes was lifted in June 1943. Even with tax policies designed to protect the local industry, there was no way to stem the influx of better-made cigarettes from elsewhere. According to Tax Department figures, the SGNBR imported 6.5 billion yuan worth of goods in 1943, including tobacco and alcohol valued at 350 million yuan, which made up over five percent of total imports, a contribution exceeded only by clothing, cotton and wool products, and sundry goods.²⁵

A further flaw of the monopoly pertained to taxation. Whereas most smuggled cigarettes went untaxed, the Provisional Regulations directed the government to create a stifling taxation hydra that would in effect ensnarl the monopoly. All levels of the SGNBR’s tax bureaucracy were instructed to set up their own tobacco and alcohol monopoly offices. These offices were charged with monitoring the flow of monopoly products within the SGNBR and across its borders. The tax offices were also required to supervise production at each cigarette factory.

Given all these problems, the monopoly system was never extended beyond the core area of the SGNBR and was short lived. It only operated in Yan’an for a few months in 1943 and then again briefly in March 1944.

On February 8, 1944, the pendulum swung back in the direction of prohibition, as SGNBR authorities announced another ban on imports. Stocks of imported cigarettes had to be sold off before March 20, following which the Goods and Materials Bureau would swoop in and purchase all remaining cigarettes and sell them outside the SGNBR. In at least one respect this new policy was even more far-reaching than the previous ban. Not only was importing cigarettes banned, but so too was cross-border transit of cigars and water-pipe tobacco.²⁶ The announced purpose of this strict gatekeeping was “to facilitate the smooth implementation of cross-border and internal trade, promote a trade surplus, and safeguard production in the SGNBR.”²⁷

Like the 1942 embargo, the 1944 ban was linked to fiscal belt tightening. By the end of 1943, austerity had again become the SGNBR’s mantra. As a nonessential consumer good that generated a substantial outflow of cash, the imported cigarette became one of the first targets of new austerity policies. No doubt, one calculus here was also to help local cigarette manufacturers. Agricultural, industrial, and handicraft capacity in the SGNBR had all improved since the preceding year, which meant that additional resources were available for developing the local cigarette industry.

Other Aspects of SGNBR Government-Owned Cigarette Production

Large-scale cultivation of tobacco had never been attempted in this part of China, though the region was certainly suitable, given that locals had long been planting leaf for personal consumption. When it became a political entity in 1939, the SGNBR government began pushing tobacco cultivation as an income generator, but it also began experimenting with different varietals—Virginia tobacco acquired from Shanxi and Sichuan provinces, for example. Perhaps to avoid undermining grain production, or perhaps to keep an economic grip on a cash crop, SGNBR authorities insisted that Virginia tobacco cultivation should remain firmly in the hands of the government.²⁸

Promotion of tobacco leaf cultivation jumped after the Wannan Incident in spring 1941, with the push toward autarchy. Under the banner of “self-reliance,” authorities encouraged all government departments, schools, and army units to take part in all manner of agricultural production, so that they could each cover a certain portion of their own daily needs. Perhaps the most famous example was the 359^th Brigade, praised by Mao in December 1942. The brigade opened up wasteland in Nanniwan, growing grain, vegetables, hemp, and (especially) tobacco on twenty-five thousand mu of land (one mu is about a sixth of an acre).²⁹ As a cash crop, tobacco at the time was worth much more than grain. Thus, as soon as the population’s supply of grain, cotton and flax, and other essential items had been assured, government bureaus, army units, and peasants all began to push further into tobacco cultivation.

Government departments set up facilities for making hand-rolled cigarettes, leveraging increases in local tobacco output. By 1943, the Finance Bureau had set up the Northwestern Cigarette Factory, and the Party School of the CCP Central Committee had set up the Yufeng Cigarette Factory. The 1944 ban on cigarette imports supercharged the creation of such factories, urged by the shift to self-reliance. Most of these were small, privately run workshops employing between two and fifteen people; in some instances, a workshop consisted of only a single person, who made cigarettes by hand during his or her spare time.³⁰ Government-owned cigarette factories were generally larger. In 1944, there were seven government-owned factories with a total of 150 employees altogether. By 1945 there were thirty such factories, with the largest being the Huafeng Factory (with 80 employees), the Yufeng Factory (60–70 employees), the Northwestern Factory (40-plus employees), and the Tuanjie Factory (more than 50 employees), the last of which was affiliated with the Central Administrative Bureau of the CCP.³¹ All told, large and small, by the spring of 1945 there were more than two hundred of these facilities, with an estimated annual production reaching over seven hundred thousand cartons (with five hundred cigarettes per carton).³² This was something of the Wild West of cigarette manufacturing in China.

Not surprisingly, quality was often slipshod. With limited access to machinery, most cigarettes were rolled by hand using a wooden rolling device, which yielded irregular shapes and sizes. And although the SGNBR had introduced the cultivation of high-quality Virginia tobacco, much of what was grown was useless because curing processes were faulty. “In most cases cured tobacco was over-dried, resulting in substandard taste and appearance.”³³ Another problem had to do with the papers used. Most manufacturers only had access to low-quality stock that they brushed with a mixture of plaster, alum, and water, and then left to dry overnight to ensure it was airtight. Adhesive was typically made from common, food-grade flour.³⁴ Highlighting how chaotic production must have been in this context, during the summer of 1945 SGNBR authorities announced that factories were barred from using “toxic materials in their cigarettes.”³⁵ Apparently, in a frenzied attempt to compete in taste, feel, and freshness with cigarettes smuggled in from outside, local factories were resorting to all manner of chemical additives and adulterants.

Management methods also impaired product quality and yield. Under government ownership, cigarette factory managers’ main responsibility was little more than meeting production targets set by higher-level administrators. Managers were not accountable for costs, distribution methods, or product quality, and were routinely reimbursed for expenses according to a fixed ratio. Administrators “provided or reimbursed raw materials and expenses on the basis of a quota decided by the SGNBR government, and received the finished product in return.”³⁶ Because factories were not expected to consider market demand or the cost of raw materials when making products, they regularly racked up big losses, with investors left holding the bag. During 1943–1944, for example, the Northwestern Local Products Company suffered a loss of nearly three hundred million yuan from its investment in cigarette production.³⁷ Furthermore, when a factory happened to turn a profit, the impulse of the investing institution was to cash in quickly rather than make further investments in equipment. This was the case with the then relatively large Yufeng Cigarette Factory. The Central Party School extracted profits from the factory but rarely reinvested in equipment to improve product quality.³⁸

Pervasive smuggling facilitated by army units and their governmental allies fostered this grab-and-run outlook. According to a report submitted by the Tax Bureau in May 1945, in three counties near Yan’an alone, two hundred thousand cartons of black market cigarettes had been traded during the month of April, with an estimated value of at least four hundred billion SGNBR yuan. Most of this smuggling, investigators found, was carried out “by army and government units, with perhaps some ordinary citizens, mostly sheltered by government agents or the army, also holding a stake.”³⁹ Investigators further noted that one reason the army was inclined to smuggle cigarettes was the politics of “self-sufficiency” in the SGNBR. Army units resorted to smuggling to demonstrate that, like any other government unit, they had generated “income,” fulfilling budgetary targets.⁴⁰ Of course, the army’s trafficking of exogenous cigarettes slowed sales of locally produced brands, causing prices to tumble and reducing the revenue of the Tax Bureau.

This brings us back to a basic conclusion of this chapter: government experiments pertaining to cigarettes within the SGNBR were, on balance, managerial fiascos. Central authorities there failed in their efforts to control the market and to make money. In some of the CCP’s other base areas, cigarette policies were more successful. To be sure, all the base areas experienced cash outflows due to the consumption of non-local cigarettes, and to combat this outflow, most adopted policies, such as prohibition, heavy tariffs, and government-controlled monopolies, to stem the trade in illicit cigarettes (and to support the local economy). However, several base areas differed significantly from the SGNBR when it came to efforts at manufacturing cigarettes.

Cigarette Production in Other Communist-Controlled Regions

Two significant differences between the SGNBR and these other regions pertain to their degree of militarization and distance from economically advanced areas. Because the SGNBR was far from the front lines, it had relatively few soldiers. Apart from some skirmishes with the Guomindang in 1940, the region saw no fighting during the Anti-Japanese War. By contrast, other CCP base areas tangled with the Japanese army and were full of battle-tested (and sometimes battle-weary) soldiers—this included the Eighth Route Army in the Shanxi-Hebei-Shandong-Henan Base and the New Fourth Army in the Jiangsu-Anhui Base. Irrespective of locale, however, soldiers during the twentieth century were significant consumers of cigarettes—even more so outside of China. Armies in both Europe and the United States, for example, were given cigarettes as part of daily rations, considered vital for calming frayed nerves and shoring up morale.⁴¹ The Japanese army also had a standard allocation of forty cigarettes per person per week.⁴² But unlike the Japanese army, the armies of the Chinese Communist Party controlled few cities with cigarette manufacturing facilities. Thus the party encouraged its army commanders to guarantee a steady supply whenever necessary by organizing mobile tobacco production units.

Frontline army units often found it easier to manufacture cigarettes than did units back in the SGNBR. Frontliners were regularly in areas controlled by the enemy, where it was relatively easy to acquire cigarette papers, rolling machines, and technical personnel familiar with manufacturing. The Chinese Communist Shanxi-Hebei-Shandong-Henan and Jiangsu-Anhui base areas lacked access to advanced machinery, but they were close to well-established plantations growing Virginia tobacco. Therefore, as long as they had suitable paper, it was possible for these army units to crank out cigarettes with hand-rolling techniques. Other army units, however, produced more machine-rolled cigarettes than they could consume and cashed in on the surplus. Sometimes, they even developed broad brand recognition. The New Fourth Army’s Flying Horse brand, for example, produced in its factory in Xinqun, became a favorite even in enemy-occupied areas.

The Xinqun factory deserves further consideration because of how it handled profits. This factory, by 1944, had over two hundred employees and was making a profit of more than ten thousand yuan.⁴³ However, it did not allow tax collectors or other entities to siphon off all these earnings. Instead, it continued to update its machines, smuggling in new ones from Shanghai. It sought out skilled technicians, including personnel who had originally trained with the British American Tobacco Company. It also sought out better-cured tobacco from Anhui, on the other side of the enemy’s blockade. In other words, Xinqun was successful not only because it was close to the enemy and had lots of soldiers, but also because it strived to improve product quality, as opposed to the SGNBR approach.

Final Thoughts

Mark Selden, in his assessment of early Communist economic policies, lavishes praise on modes of production in the SGNBR. He suggests that these modes of production helped stabilize the base areas in a period of great precariousness for the CCP.⁴⁴ In our examination, a different image emerges. Governmental experimentation with cigarette manufacturing in the Yan’an region was riddled with problems. Illogical plans led to failures in manufacturing and sales; top-down production pressures induced cutting corners; shortsighted investment precluded capital improvements; and incomplete efforts at prohibition fueled smuggling and other forms of misconduct. In some instances, base areas in other parts of China met with notable success when it came to cigarette manufacturing, but this was rarely so in the SGNBR.

Chronicling all this experimentation is significant for understanding tobacco in China from the mid-twentieth century forward. In February 1949 the CCP launched a new effort to create a state monopoly apparatus covering alcohol and tobacco. This time, however, monopoly building was not limited to just any one base area. It covered what had become the newly named Northeast China Liberated Zone.⁴⁵ Unlike the party’s modus operandi in the SGNBR, in the Northeast the nascent monopoly would come to involve heavy investment in local factories, strict limits on imported cigarettes, mechanized production, bans on handmade cigarettes, and anti-smuggling measures. Through these efforts, regional cigarette production in the Northeast climbed quickly, generating profits for the regime. All this became an important model for CCP planners as they began configuring cigarette manufacturing nationwide after 1949, as Sha Qingqing elaborates in the next chapter. It remains unclear how much party leaders, when designing their Northeastern monopoly in the late 1940s, actively contemplated the mistakes made earlier in the SGNBR. What is clear is that they took a different approach than had typified Yan’an and environs.

From the late 1930s to the late 1940s, what was consistently at the heart of CCP experimentation with cigarettes? Certainly profits. Cigarette manufacturing held the great promise of high financial returns for the party. At the heart of all this experimentation, however, were also discourses that would carry over into the post-1949 era. Base area experimentation elicited managerial discussions aplenty, pertaining to raw-material sourcing, quantity, quality, taxation, and smuggling. Out of these discussions, a number of notions would become deeply rooted in the psyche of the People’s Republic. Of these, two became especially normalized in the latter half of the twentieth century. The first is that producing cigarettes is a responsibility of CCP governance. The second is that, within the party-state, impediments to cigarette manufacturing and sources of slipshod production need to be overcome.

Mao Zedong quietly codified these notions not long after the founding of the People’s Republic. In 1953, when the Ministry of Health was planning its early rounds of programming, it proposed making abstention from tobacco a pillar of its public health outreach. Mao and others atop the CCP would have none of it. He and the CCP Central Committee swiftly endorsed the position of China’s southern provinces that health campaigns against tobacco were forbidden because, as Mao personally penned, they would “harm production.”⁴⁶ Basic principles for a young polity were thus set. Health-related branches of government were to stay out of the way so that a newly nationalized tobacco industry could devise better means to cultivate leaf, manufacture cigarettes, and sell smoke.

Notes

1. To be sure, local policy experimentation in the base areas was not limited to the realm of tobacco governance. For a discussion of how and why the CCP was so prone to experimentation in the base areas and how policy experimentation there subsequently became a template for how the party would devise new national policies of many types running all the way up to the present day, see Sebastian Heilmann, “From Local Experiments to National Policy: The Origins of China’s Distinctive Policy Process,” China Journal, no. 59 (January 2008): 1–30. For a discussion of Maoist notions of self-reliance and science, see Sigrid Schmalzer, “Self-Reliant Science: The Impact of the Cold War on Science in Socialist China,” in Naomi Oreskes and John Krige, eds., Science and Technology in the Global Cold War (Cambridge, MA: MIT Press, 2014).

2. Yan Yan, Shaan-Gan-Ning bianqu jingji fazhan yu chanye buju yanjiu (1937–1950) [Research on economic development and the distribution of industries in the Shaan-Gan-Ning Border Region, 1937–1950] (Beijing: China Social Sciences Press, 2007), 23–25.

3. Zhongguo kangri zhanzheng shi xuehui [Chinese Association of Historical Study of the Anti-Japanese War] and Zhongguo renmin kangri zhanzheng jinianguan [Chinese People’s Anti-Japanese War Memorial Hall], eds., Kangzhan shiqi de Shaan-Gan-Ning bianqu [The Shaan-Gan-Ning Border Region during the war] (Beijing: Beijing Press, 1995), 435.

4. In 1943, the SGNBR had 6.47 billion yuan of imports and 5.36 billion yuan of exports, of which 68 percent were “special local products.” See Shaan-Gan-Ning bianqu caizheng jingji shi bianxie zu [Financial and Economic History of the Shaan-Gan-Ning Border Region Writing Group] and Shaanxi sheng dang’anguan [Shaanxi Provincial Archives], eds., Kangri zhanzheng shiqi Shaan-Gan-Ning bianqu caizheng jingji shiliao zhaibian [Selected extracts from historical materials pertaining to finances and economics in the Shaan-Gan-Ning Border Region during the Anti-Japanese War] (Xi’an: Shaanxi People’s Press, 1981), vol. 4, 50. According to research by Chen Yung-fa, the “special local product” was, in fact, opium. In other words, the SGNBR had no choice but to rely on the secret trade in opium in order to maintain a trade balance, and even this was not sufficient to reverse an overall trade deficit. See Chen Yung-fa’s “Hong taiyang xia de yingsuhua: yapian maoyi yu Yan’an moshi” [Poppies under the red sun: The opium trade and the Yan’an model], Xin shixue [New History], vol. 1, no. 4 (December 1990): 41–117.

5. Regarding tobacco consumption habits in rural China during the Republic of China, see Carol Benedict, Golden-Silk Smoke: A History of Tobacco in China, 1150–2000 (Berkeley: University of California Press, 2011), 171–77, 185–98.

6. Shaanxi sheng zhi: Yancao zhi [Shaanxi provincial gazetteer: Tobacco](Xi’an: Shaanxi renmin chubanshe, 2006), 5.

7. Jiefang ribao [Liberation Daily], December 24, 1941, 4.

8. Ibid.

9. Shaanxi sheng dang’an’guan [Shaanxi Provincial Archives] and Shaanxi sheng shehui kexue yuan [Shaanxi Provincial Academy of Social Sciences], eds., Shaan-Gan-Ning bianqu zhengfu wenjian xuanbian [Selected documents of the Shaan-Gan-Ning Border Region government] (Beijing: Dang’an chubanshe, 1988), vol. 4, 218.

10. Ibid., 407.

11. Kangri zhanzheng shiqi Shaan-Gan-Ning bianqu caizheng jingji shiliao zhaibian, vol. 4, 111.

12. Jiefang ribao, January 17, 1942, 4. Among the foreign cigarette brands mentioned in the sales ban, Xiandao (8 yuan per 10 cigarettes), Qianmen, and Paotai were all manufactured by the Yee Tsoong Cigarette Company, and Fengche was manufactured by the Eastern Tobacco Company in Yingkou. Yee Tsoong and the Eastern Tobacco Company were both Chinese firms belonging to the tobacco giant British American Tobacco.

13. Jiefang ribao, March 10, 1942, 4.

14. Shaanxi sheng zhi, 542.

15. Jiefang ribao, April 12, 1942, 2.

16. Ibid.

17. Shaanxi sheng zhi, 542.

18. Jiefang ribao, January 28, 1944, 1.

19. Ibid., February 5, 1944, 1.

20. Kangri zhanzheng shiqi Shaan-Gan-Ning bianqu caizheng jingji shiliao zhaibian, vol. 4, 156–64.

21. Jiefang ribao, December 24, 1941, 4.

22. It is reasonable to assume that the SGNBR Department for the Management of the Import-Export of Goods and Materials granted a “special license” in order to satisfy the cigarette cravings of these leaders. Shaanxi sheng zhi, 542.

23. Kangri zhanzheng shiqi Shaan-Gan-Ning bianqu caizheng jingji shiliao zhaibian, vol. 4, 158–61.

24. Ibid., 161–62.

25. Ibid., 50.

26. Ibid., 579–81.

27. Shaan-Gan-Ning geming genjudi gongshang shuishou shiliao xuanbian [Selected documents on industrial and commercial taxation in the Shaan-Gan-Ning Revolutionary Base Area] (Xi’an: Shaanxi renmin chubanshe, 1986), vol. 5, 263.

28. Shaanxi sheng zhi, 527.

29. Mao Zedong xuanji [Selected Works of Mao Zedong] (Harbin: Dongbei shudian, 1948), 830.

30. Shaanxi sheng zhi, 532.

31. Ibid.

32. Shaan-Gan-Ning geming genjudi gongshang shuishou shiliao xuanbian, vol. 5, 470.

33. Shaanxi sheng zhi, 539.

34. Ibid., 533.

35. Kangri zhanzheng shiqi Shaan-Gan-Ning bianqu caizheng jingji shiliao zhaibian, vol. 5, 474.

36. Shaanxi sheng zhi, 540.

37. Ibid.

38. Zhang Guozhen, “Huiyi Yan’an zhongyang dangxiao de yufeng juanyan chang” [Memories of the Yufeng cigarette factory affiliated with the Central Party School in Yan’an], in Yan’an zhongyang dangxiao zhengfeng yundong [The rectification movement at the Central Party School in Yan’an] (Beijing: Zhonggong zhongyang dangxiao chubanshe 1989), 240.

39. “Waiyan zousi qingkuang ji jidai chuzhi banfa de baogao” [A report on the smuggling of imported cigarettes and the urgent need to prohibit it], Shaan-Gan-Ning geming genjudi gongshang shuishou shouliao xuanbian, vol. 5, 464.

40. Ibid., 466.

41. See Richard Klein, Cigarettes Are Sublime (Durham, NC: Duke University Press, 1993), chap. 5.

42. Jiefang ribao, November 6, 1942, 4.

43. Liu Zhihui and Yue Xin, “Ji Xinqun yancao gongsi” [Remembering the Xinqun Tobacco Company], Zhongguo yancao [China Tobacco] no. 1 (1985): 1–4; Hu Biliang, “Xinsijun ershi de gongji he shengchan” [Supply and production of the New Fourth Army Second Division], Zhongguo kangri zhanzheng shengli de yiyi he sikao—Beijing Xinsijun ji Huazhong kangri genjudi yanjiuhui jinian kangri zhanzheng shengli 60 zhounian dahui lunwenji [The implications of and reflection on China’s victory in the Anti-Japanese War: Proceedings of the conference of the Beijing New Fourth Army Anti-Japanese Base in Central China Research Society to commemorate the sixtieth anniversary of the victory in the Anti-Japanese War], vol. 4 (2005), 295–97.

44. Mark Selden, China in Revolution: The Yen’an Way Revisited (Armonk, NY: M.E. Sharpe, 1995), 196–208.

45. Yang Guoan, ed., Zhongguo yan ye shi huidian [Documents on the history of the Chinese tobacco industry] (Beijing: Guangming ribao chubanshe, 2002), 1585.

46. Jianguo yilai Mao Zedong wen’gao [Mao Zedong’s manuscripts since the founding of the PRC] (Beijing: Zhongyang wenxian chubanshe, 1990), vol. 4, 172. I am grateful to Sha Qingqing for providing me with this reference.