Hongyun Group and Honghe Group, two of Yunnan province's largest tobacco companies intend to merge, a move that will form China's largest and the world's fourth-largest cigarette producer by volume, according to Chinese media reports.

The planned merger, which is still awaiting regulatory approval, suggests a move towards consolidation in China's highly fragmented tobacco industry. China is the world's largest producer and consumer of cigarettes, with a market of more than 300 million smokers, a market that is still growing.

If the merger goes through, the new company is expected to be the world's fourth-largest cigarette producer after Philip Morris International, British American Tobacco and Japan Tobacco Inc.

Yet in terms of revenue, the two companies' combined 2007 revenues are less than 30 percent of the revenue of current number four Imperial Tobacco Plc, partially because cigarettes in China are some of the cheapest in the world. According to their websites, in 2007 Hongyun Group posted 29 billion yuan (US$4.2 billion) in revenue and Honghe took 16 billion yuan.

The proposed company would be named Hongyun Honghe Tobacco Group Company Limited (红云红河烟草集团有限责任公司) and would have production facilities in Kunming, Qujing, Honghe, Zhaotong, Huize in Yunnan province, plus facilities in Xinjiang.

After the merger, the company would produce several of China's larger cigarette brands, including Yunyan, Honghe, Hongshancha, Shilin and Lesser Panda.

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Tags: business, health, Honghe, Honghe Group, Hongshancha, Hongyun Group, Lesser Panda, Shilin, tobacco, Yunyan