IN 1638, Chongzhen, the last emperor of the Ming Dynasty (1368-1644), issued an imperial edict declaring the possession, use or selling of tobacco a capital offense punishable by decapitation.

Three years later, a powerful general in charge of the army guarding the border with the Manchu area asked the emperor to end the ban, saying tobacco was crucial to boosting the morale of soldiers and curing their diseases.

The emperor weighed the arguments and decided to end the ban.

Like Emperor Chongzhen, modern China is also at war, but this time the enemy is tobacco, which kills about 1 million Chinese each year, says Yang Gonghuan, deputy head of China's National Tobacco Control Office.

And, like the emperor, the government today must weigh conflicting interests as it extends health care insurance across the country. At what point do the economic and medical costs of smoking-related illnesses outweigh the financial benefits of the tobacco industry?

The number of tobacco-related deaths is expected to double by 2025 and triple by 2050 if China fails to reduce tobacco consumption, says Yang, also deputy head of the Chinese Center for Disease Control and Prevention.

2.3 trillion cigarettes

The reduction in the number of smokers in China has been negligible, even in the five years since China ratified the WHO Framework Convention on Tobacco Control, Yang says. The number of smokers declined by 0.45 percent annually from 2003 to 2010, less than the 0.9 percent from 1996 to 2002.

China's tobacco consumption has increased steadily from 589.9 billion cigarettes in 1978 to about 2.3 trillion last year, according to the China National Tobacco Corporation's website.

In Yang's view, the best way to control tobacco consumption is to let the Ministry of Health or a new ministerial-level department take over the task of tobacco control. Now, the ministry that sells tobacco also oversees the implementation of the anti-tobacco treaty.

"It's like a bunch of foxes in the chicken coop discussing how to protect the chickens," Yang says.

CNTC, the world's largest cigarette maker that produces more than 95 percent of China's tobacco products, is part of the State Tobacco Monopoly Administration, which is part of the Ministry of Industry and Information Technology.

The industry's political status, implied by the fact that the head of the STMA is deputy head of the MIIT, allows it to influence public health policy in a way most other countries would not permit. The MIIT's attitude toward tobacco control was reflected by the words of Li Yizhong, the MIIT minister at the National Tobacco Work Conference in January.

"It is our core task to control production of tobacco leaves," he said, before adding: "Great efforts must be taken to raise the efficiency of the tobacco industry and achieve good and fast development."

But new studies are challenging the prevailing belief - even among non-smokers - that the tobacco industry is too important to the economy to discourage its development.

Tobacco generated 513.1 billion yuan (US$77.3 billion) in taxes and profits last year, more than 7.5 percent of the total central government revenues, and employed 520,000 workers in 183 factories, said Zhang Xiulian, spokesman of the STMA, in a press conference in January.

Although the proportion of government revenues from the tobacco industry has been falling - from 11.5 percent in 1995 to 7.5 percent last year - Yang said the decline mainly stems from the growth of other industries.

The absolute production value of the industry rose from 100 billion yuan in 1978 to 513.1 billion yuan last year, but, she said: "The economic costs arising from tobacco use has long been underestimated."

She said the net contribution of tobacco to China's economy is about minus 20 percent. That means the losses caused by smoking outweigh the taxes and profits it generates by about 20 percent.

The calculation is backed by a study by the China Center for Economic Research at Peking University, Peking University's People's Hospital and the Department of Economics of Stockholm University in September 2008.

More losses than profits

In 2005, tobacco caused direct medical costs of 166.6 billion yuan and indirect costs - in the forms of productivity loss, years of potential life lost, and loss from fires and pollution - of 120.5 billion yuan, resulting in a total loss of 287 billion yuan, 19.6 percent more than the 240 billion yuan in taxes and profits the industry generated.

Given that diseases and fatalities caused by tobacco use have a time lag of 20 to 25 years, it is not this government that will have to pay the medical bills for the mass addiction to the weed, said Zhi Xiuyi, head of the Lung Cancer Diagnosis and Treatment Center of the Capital Medical University in Beijing.

Lung cancer cases have soared by 465 percent since 1980, and account for nearly a quarter of cancer deaths, said Zhi, also head of the department of tobacco control and lung cancer prevention at the Cancer Foundation of China. In the past, when individuals, work units and companies covered health insurance and medical care, the nominal cost to the government was negligible, Zhi said.

However, the government is rolling out its own health insurance program across the country, so it will become more liable for the costs of smoking-related illnesses, he said. "At the end of the day, all Chinese, including non-smokers, will be burdened with the medical costs of smokers."

Raising taxes and prices have been proved to be the most effective means to reduce smoking, said Teh-wei Hu, professor of health economics in the School of Public Health, University of California, Berkeley.

However, cigarettes have become more than twice as affordable in China since 1990, and smoking is much cheaper than in other countries, said Hu, also a senior policy adviser to China's Ministry of Health.

Raising tax on smoking

The overall effective tax rate of 40 percent on a packet of smokes in China is much lower than the international average, which ranges from 65 to 70 percent.

The tobacco industry has long argued that tax increases risk cutting government revenues, but Hu said a tax rise would actually raise revenues while reducing tobacco demand.

Hu's study showed that raising the tax on a pack of cigarettes by 1 yuan would increase the Chinese government's revenues by 64.9 billion yuan, reduce the number of smokers by 3.4 million, reduce medical costs by 2.68 billion yuan and generate a productivity gain of 9.92 billion yuan.

However, the decision to raise consumption tax on cigarettes by 6 to 11 percent in May 2009 brought increased revenues - but no reduction in tobacco use. "The tax increases had no impact on cigarette prices set by the STMA, as the tobacco producers and dealers had a big enough profit margin to absorb the burden themselves rather than pass it on to consumers," Hu said.

If China's tobacco tax rose to 51 percent, from the current 40 percent, of the retail price, the price of cigarettes would be affected and the number of smokers would decrease, according to Hu's study.

As more than half of Chinese smokers pay less than 5 yuan per pack, a big tax hike would likely persuade many poorer smokers to quit if almost 11 percent of their household expenditure went on cigarettes, Hu said.