Tobacco admin takes charge of China’s e-cigarettes

As China places e-cigarettes in the hands of the State Tobacco Monopoly Administration, fresh optimism and new doubts have emerged over the future of a US$16 billion industry.

Photo from CFP

Photo from CFP

By XU Shiqi

 

The problem of just who is in charge of China's e-cigarette industry was finally settled on November 26, when the State Council declared e-cigarettes to be a new type of tobacco and put the State Tobacco Monopoly Administration in charge.

The response of the capital market was swift. RELX Technology fell on Monday, then rose slightly in after-hours trading. Smoore fell more than 5 percent. The response may have been quite obdurate, but opinion is divided. Optimists anticipate tougher rules on market access, conducive to standardization and long-term development. Others fear uniformity will do harm to the market.

Raising the bar

AO Weinuo, secretary general of the Electronic Cigarette Industry Committee, told Jiemian News that detailed rules on standards, production, and sale, tax regime, etc., will be introduced next year.

"We shall not expect e-cigarettes to be regulated and monopolized by the State in the same way as cigarettes. I am optimistic. Legislation on e-cigarettes is emerging all over the world. Vaping is an emerging, innovative industry, but also is one which demands protection of minors, safety standards, and appropriate taxation," said Ao.

Since online sales were banned in 2019, offline e-cigarette stores have occupied the streets at tremendous speed. There are more than 128,000 e-cigarette enterprises in China, of which more than 80 percent have a registered capital of less than 2 million yuan (US$315,000). RELX alone has more than 15,000 stores in China. Most brokerage research reports hold the view that regulation, such as unified price setting and designated distribution channels, will mean bankruptcy for some small businesses.

ZheShang Securities believes that the process of examination and approval for business will be different from that of traditional cigarettes, though some of the details may be similar. In terms of taxation, duty on cigarettes is more than 60 percent, while e-cigarettes only generate 13 percent in value-added tax. In Japan, e-cigarettes pay 80 percent of the levy on conventional cigarettes. With reference to the U.S. policy, certain flavored e-cigarette products that appeal to kids, mainly fruit and mint flavors, may be restricted.

Smoke-free world

Foreign trade is vital to long-term development. One small brand told Jiemian News that the company plans to invest overseas. Sichuan Tobacco's "heat-not-burn" (HNB) line has been on sale in Spain since August.

Export regulations are likely to mirror international regulations and China's standard customs procedures. China is the world's e-cigarette factory for overseas brands. Exports are expected to hit a record 100 billion yuan in 2021, directly and indirectly creating nearly 3 million jobs.

It is not easy for Chinese brands to adapt to new market rules and establish channels, but there may not be many impediments for exporters. Investment by the biggest tobacco conglomerates is a trend that is certain to continue. Smoore International already sells 80 percent of its products overseas, with the United States its main market, principally through a partnership with British American Tobacco, the world's second largest tobacco group. Philip Morris (Marlboro) expects that by 2025, “new tobacco” will account for more than 30 percent of the business.