China Signs a Puff Pact

It is a cigarette manufacturer's dream: a market where the laws do not require harsh health warnings on package labels or no-smoking sections in restaurants, and where 250 million people each puff an average of half a pack a day.

For R J. Reynolds Tobacco, the dream has come true in an agreement signed last week in Peking. The pact calls for Reynolds and China to contribute $10 million each to set up a joint venture that will build a factory in the southern Chinese city of Xiamen and produce the first Sino-American cigarette. The new brand, as yet unnamed, will be a blend of American and Chinese tobaccos. Lester Pullen, president of Reynolds' international tobacco division, admitted that the cigarette must be good to satisfy Chinese smokers. Said he: "In their tastes, the Chinese are comparable to Europeans, especially the British."

Reynolds and Chinese officials are exploring a possible future deal involving one of the company's other products: Kentucky Fried Chicken. For Reynolds executives, that prospect conjures up another dream, in which 1 billion Chinese lick their fingers after sampling Colonel Sanders' spicy recipe.