BAT holds talks over move to China

BRITISH American Tobacco has been holding fresh talks with officials in Shanghai about plans to build a cigarette factory in China.

BAT declined to comment on the progress of its plans, but business sources in Shanghai said it had held discussions in the past few weeks.

The talks came to light as BAT announced last week it was thinking of closing its cigarette-making plant in Southampton to move production closer to key Far East markets.

China, with 350 million smokers, is a vital market for tobacco companies as tighter regulations and health concerns squeeze western markets and its low labour costs make it an ideal site for manufacturing.

BAT's plans for China ran aground last year. The company said it was to build a plant, only to have its claim contradicted by officials from the country's tobacco regulator, the State Tobacco Monopoly Administration.

Since then, BAT has insisted that its plans have been agreed at the highest levels of government, but has refused to comment further.

However, it has said it could move some of its manufacturing at the Southampton plant, which employs 660 staff making Dunhill, Rothmans and Lucky Strike, to South Korea and Singapore. Rumours have also been circulating that China is considering whether to invite western tobacco firms to invest in the state-owned Chinese National Tobacco Corporation.

No announcement has been made, but China is selling stakes in key nationalised banks to western banks and the tobacco monopoly is seen by some analysts as a natural candidate for part-privatisation.