Chinese lawmakers began yesterday a review of a draft law on leaf-tobacco tax, according to a Xinhua Newswire story.
The law is due to replace a regulation that has been in place since 2006, but it is not expected to alter the rate of tax levied on leaf.
The draft law was given a first reading at a five-day bimonthly session of the National People’s Congress Standing Committee, which opened on Monday.
The law stipulates that a tax rate of 20 percent will be levied on tobacco leaf buyers, the same rate as was levied under the previous regulation.
China began collecting tax on leaf tobacco sales in 2006.
Revenue from the tax was said to have increased by an average of 12 percent between 2006 and 2016 and to have totaled 109.7 billion yuan (US$16.6 billion) during that period.
A woman in China has brought a lawsuit against the Harbin Railway Bureau that aims to have smoking on regular trains and station platforms banned, according to a GBTIMES story quoting a report in The Paper.
The Beijing Railway and Transport Court has accepted the case and the trial is scheduled to begin on August 24.
It is the first such lawsuit brought by a Chinese citizen against the authorities.
The story said that the woman, Li Yan (not her real name), was surprised to find a regular K1301 train she was travelling on between Beijing and Tianjin filled with cigarette smoke on June 9.
She noticed that many passengers and train staff were smoking in the smoking area of the train, which was under the supervision of the Harbin Railway Bureau, resulting in non-smoking passengers being subjected to second-hand smoke.
After what was described as an unpleasant journey, Li wrote letters of complaint to the National Railway Bureau and the Health and Family Planning Commissions of Beijing and Tianjin, but each of them replied that they were not responsible for the banning of smoking on trains.
Li then launched the lawsuit to ban smoking specifically on the K1301 train, as well as on the platforms of Beijing and Tianjin railway stations.
She wants also all smoking areas and paraphernalia to be removed, and she wants compensation for her ticket and a gauze mask used to reduce both her smoke inhalation and anguish. The total monetary claim comes to US$18.30.
According to the relevant regulations of Beijing and Tianjin, both cities prohibit smoking in indoor public places.
Meanwhile, all high-speed trains in China have banned passengers from lighting up, though there are designated smoking areas aboard regular trains that travel at less than 160 kilometres per hour.
Five ‘key members’ of a gang have been charged in China with producing and selling illicit tobacco machines, according to a Shanghai Daily story relayed by the TMA and quoting the Jiading District People’s Procuratorate.
It is alleged that between February and June 2016, the gang members sold five machines for 2.2 million yuan (US$327,400) in Yunxiao and Xiamen, Fujian province, and in Taiwan.
Prosecutors said that, without getting approval from the local tobacco authority, the main suspect had rented two warehouses in Jiading as workshops and hired workers to produce the tobacco manufacturing machines.
In China, tobacco production and sales are under state control.
August is clearly a busy month for illicit-machinery busts in China. On August 4 last year, this magazine reported that Shanghai police had busted a seven-member gang that built and sold illicit cigarette-making machines nationwide.
The 2016 report, which was based on a story by Janet Zhang for the Shanghai Daily quoting Shanghai Television, bore some resemblances with that of the 2017 story – certainly in respect of geography and machine prices.
The gang, which apparently operated out of the Jiading District of Shanghai, sold their machines to people in other provinces, including Fujian, Liaoning and Guangdong.
When the police busted the gang on July 12, they seized 19 machines.
According to the police, the gang had been running the business since October 2014.
The gang members were said to have bought machine parts from other places and hired people to assemble them in Jiading.
The machines, which were said to have sold at prices ranging from 250,000 yuan to 400,000 yuan, were apparently capable of producing 2,000 cigarettes a minute.
The number of cigarettes sold in Beijing during 2016 fell by eight percent year-on-year, according to a story by Wang Xiaodong for the China Daily citing a report on the health of the city’s population released by the Beijing municipal government on Wednesday.
This was said to have been the biggest decline in recent years.
The incidence of smoking among people aged 15 or older last year stood at 22.3 percent, a drop of 4.7 percentage points from that of 2014.
The number of smokers had decreased by about 200,000, the report said.
The number of cigarettes sold in Beijing last year reached 93.8 billion, the report added, citing the Beijing Bureau of Statistics.
In introducing a public-places tobacco-smoking-ban in June 2015, Beijing was said by Wang Xinmei, a member of the Shanghai Municipal Committee of the Chinese People’s Political Consultative Conference, Shanghai’s political advisory body, to have done a good job.
Wang, who was comparing the performances of Chinese cities in introducing bans, pointed out that on all flights and trains bound for Beijing there had been repeated broadcasts informing people about the smoking ban.
That was a powerful message from which Shanghai could learn, said Wang.
The China National Tobacco Corporation (CNTC) and Cuba’s Habanos S.A. have signed a letter of intent on increasing Cuba’s cigar exports to China, according to a Xinhua News Agency story.
The CNTC’s general manager, Ling Chengxing, and the co-presidents of Habanos, Inocente Nunez and Luis Sanchez-Harguindey, signed the agreement in Havana on Sunday.
According to the agreement, Habanos will assist with cigar production in China while expanding its cigar sales there.
“With the support of the Cuban side and the Chinese side, and the Chinese and Cuban people, I am sure that Cuban tobacco is going to do very well in China,” said Ling, who doubles as the director-general of the State Tobacco Monopoly Administration, the regulator of China’s tobacco industry.
The story said that Cuba’s cigar and cigarette sales to China accounted for more than half of its sales by volume and about 70 percent by revenue.
Habanos, a joint venture between Cuba’s state-owned Cubatabaco and Altadis, an affiliate of Imperial Brands, recorded revenue of about US$450 million last year.
Chinese tobacco authorities were involved in the seizure of 195,000 cartons of smuggled and counterfeit cigarettes during the first half of this year, according to a Xinhua News Agency story quoting the State Tobacco Monopoly Administration.
Tobacco authorities at all levels were said to have worked closely with the police and customs authorities to intensify a crackdown on smuggling gangs.
Law enforcement agencies prosecuted 1,601 people for producing and selling counterfeit cigarettes.
According to Chinese law, people who sell counterfeit products worth more than 50,000 yuan (US$7,353) are liable to punishment, while the worst offenders may be sentenced to life in prison.
Despite signing a World Health Organization treaty on tobacco control more than a decade ago, China is experiencing one million deaths a year from smoking, according to a report published yesterday by the University of Waterloo’s International Tobacco Control Policy Evaluation Project (ITC) and China’s Center for Disease Control and Prevention (CDCP).
The ITC-China CDCP report presents the results of a 10-year longitudinal study of 8,000 smokers and 2,000 non-smokers in five major Chinese cities and five rural areas. It found, in part, that more than half of the country’s 316 smokers had no intention of quitting.
“The ITC survey shows clearly that although China has made some progress in tobacco control, their progress on combatting the number one cause of preventable death, cigarettes, has been slow,” said Geoffrey Fong, founder of the 28-country ITC Project and professor of psychology at the University of Waterloo. “For 10 years, China has not taken actions to reduce smoking that have been shown to work well in many other countries.”
In addition to finding high rates of smoking and low quitting intentions, the study found also that though awareness of the harm caused by cigarettes to smokers had increased during the past decade, it was still the lowest of any country surveyed by the ITC Project.
According to the survey, only 61 percent of Chinese smokers were aware that smoking could cause heart disease, the lowest level of awareness of any ITC country. The survey found too that second-hand smoke was present in 62 percent of workplaces and 73 percent of homes in China, the highest levels of 20 ITC countries.
“Smoking is the most important cause of chronic, non-communicable diseases, which account for nearly 90 percent of deaths in China,” said Yuan Jiang, the director of the Tobacco Control Office of the Chinese CDCP. “It is critically important for China to implement a national smoke-free law, pictorial health warnings on cigarette packages, and a complete ban on all forms of tobacco advertising.”
The report includes recommendations for strengthening tobacco control efforts, including a substantial increase in cigarette taxes. ITC data was said to show that cigarettes were more affordable in China than in any other ITC country.
“It’s now time for policymakers in China to build on the steps it has taken and to move decisively to reverse the tobacco epidemic,” said Bernhard Schwartländer, the WHO representative in China. “Findings from the ITC-China CDC[P] report present a compelling case that more action needs to be taken in China in the interest of public health.”
The future of China’s underdeveloped vapor market hinges on regulation, innovation and consumer education.
By Stefanie Rossel
Despite its status as the birthplace of the modern e-cigarette and the largest producer of related hardware, China’s domestic vapor market remains tiny. In 2015, e-cigarettes generated sales of only $448 million, according to Jackie Zhuang, a Chinese vapor industry consultant. By comparison, the country’s eight leading cigarette brands alone accounted for $125 billion, according to Research and Markets.
Approximately 90 percent of the world’s vaping equipment, as well as accessories and a major part of e-liquids, are manufactured in China, but almost all of it is destined for export. Domestic product awareness remains low; even in major cities such as Beijing and Shanghai, vaping is uncommon.
Until 2013, there was virtually no domestic market for vapor products, explains Zhuang. “In 2013, the Chinese sales volume for e-cigarettes surpassed $14 million for the first time, and it was all through online sales.” Since then, however, the sector has shown impressive growth, with online sales climbing to $81 million in 2014 and $266 million in 2016.
Jackie Zhuang
Over the next five to 10 years, analysts expect that the market compound growth rate will exceed 30 percent. Due to China’s sheer size, the market for vapor devices holds enormous potential. A study on e-cigarette regulation in China, published in December 2016, calculates that for every 1 percent rate substitution of e-cigarettes for combustible cigarettes, the Chinese e-cigarette market will increase by almost $5 billion.
Zhuang estimates that there are currently between 1 million and 1.5 million Chinese vapers, most of them men. Only 2.4 percent of Chinese adult females are smokers, and an unknown percentage of females vape. “Half of the online buyers are interested in box mods, the other half in cigalikes. Among offline retail buyers, 99 percent purchase box mods and mechanical mods.”
Across all distribution channels, nominal e-cigarette sales in China totaled $448 million in 2016, according to Zhuang. Online sales accounted for 57 percent of that figure. “Most of the vape products in China are sold via Taobao/Tmall and jd.com, with Taobao officially accounting for a gross merchandise volume of $231 million,” says Zhuang. “However, it is common knowledge that a major percentage of this volume is generated by faking sales records.”
Retail outlets accounted for 37 percent of sales in 2016. “The number of shops had doubled comparing to 2015, but I estimate that at least 10 percent of the shops went out of business in January 2017 before Chinese New Year, after some investigations by several third-tier smaller cities in China, but surely also more new shops opened during that period,” says Zhuang.
The other traditional retail outlets contributed $29 million. “These channels include tobacco shops, gas stations, pharmacies, convenience stores and the other sales channels, such as corporate gift set packages,” says Zhuang. “All attempts of entries into the convenient store channel in China have failed, as cigalikes did not move in China.”
Apart from e-cigarettes, almost no other cigarette alternatives are consumed in China. “The sale of nicotine-replacement therapy products is negligible, accounting for less than $1 million per year,” says Zhuang. “Snus and other smokeless products do not exist. There are herbal cigarettes, but it’s a very small market.”
Attempts at tobacco control
The future of vapor in China will depend on consumer education and regulation, according to Zhuang.
In 2015, the Chinese government began to strengthen tobacco control measures. Its efforts included a tax increase on wholesale cigarettes from 5 to 11 percent in early 2015. In December 2016, China unveiled draft legislation to ban smoking in public places nationwide by the end of 2017. Zhuang says the ban has already been enacted in Beijing, Shanghai and Shenzhen. “The law enforcement in the first-tier cities is actually unexpectedly good,” he says.
Brad Abrams
Nationwide, however, attempts to ban smoking have mostly failed due to a lack of enforcement as well as China’s tobacco culture. Smoking is deeply rooted in Chinese society, particularly among older people. About 68 percent of men and 3.2 percent of women are smokers, according to China Briefing, a business intelligence company. For men, the pressure to smoke is high. In social and business settings, cigarettes are used to establish trust and form relationships. “With the rapidly changing demographics in China, young people are more aware of the negative health consequences of smoking and are either not smoking or looking for safer alternatives,” notes Brad Abrams, president of Vogue Trading International, who until recently worked for a China-based investment holding company.
Also frustrating smoking restriction efforts is the fact that China’s tobacco industry is state-owned. The China National Tobacco Corp. (CNTC) owns about 900 cigarette brands; tobacco generates an estimated 7 to 10 percent of China’s government revenue.
“Unlike in the West, where there is a natural tension between the government, who regulates, and the industry, which makes shareholder profits, in China the government and the industry are the same entity,” reflects Abrams. “The senior managers of [the State Tobacco Monopoly Administration]/CNTC are also high-ranking party members, a dual role. Taken together, in China there is a very strong motivation to protect the status quo in the tobacco economy. This includes fiscal income to the government, personal and institutional power of the top officials, and full employment in the countryside.”
As Chinese cigarette sales volumes have flattened, the industry has been adjusting its prices and product mix to protect revenues.
“Personally, I believe that e-cigarettes and vaping in China suffer from the same general lack of satisfaction compared to traditional cigarettes to most smokers in the West,” says Abrams. “That, coupled with the strong smoking culture and tradition in China, leads to a general lack of strong interest.”
Despite China’s massive e-cigarette hardware industry, vaping domestically has been taken up by only a select few.
Turning up the heat
Contrary to state-run combustible cigarette industry, the Chinese vapor sector is dominated by privately held manufacturers. The potential of next-generation products in China, however, has not been ignored by the monopoly. In 2015, it created the Shanghai Research Institute of New Types of Tobacco Products to help develop the new product category.
According to Euromonitor International, the State Tobacco Monopoly Administration (STMA) started researching and developing an e-cigarette product in 2013. One year later, CNTC’s provincial subsidiary in Hubei brought its first vapor products to market in Wuhan.
Blue & White and Ruisheng, two companies with ties to China’s tobacco industry, launched cigalikes, according to Zhuang. But all CNTC attempts to launch e-cigarettes have since stopped. “There is not any commercialization yet from China Tobacco,” he says. Zhuang believes that heat-not-burn products are a better fit for the Chinese tobacco monopoly than are e-cigarettes. “E-cigarettes will exist but they don’t bring value to the CNTC as far as tax intake is concerned,” he explains.
Abrams agrees. “The CNTC companies are well-aware of all of the nicotine alternatives available around the world,” he says. “I have made presentations to CNTC R&D groups describing the noncigarette alternatives, as well as new nicotine-delivery devices—as have many other westeners. Personally, I believe that the new technologies coming out of Philip Morris International [PMI] and to some extent British American Tobacco [BAT] are more interesting to the CNTC companies, as they may provide smokers with a more traditional nicotine-delivery experience, plus hold the potential to be taxed at a rate equivalent to or higher than current products—thus protecting their present revenues and power.”
Whatever the outcome of the STMA’s efforts, it will be interesting to see the implications for unaffiliated e-cigarette companies. Several international tobacco companies have shown interest in China’s e-cigarette market. In January 2017, Imperial Brands announced the establishment of a joint venture with the CNTC. Unlike joint ventures established by competitors, Hong Kong-based Global Horizon Ventures does not focus exclusively on conventional tobacco products. The partners are considering next-generation product launches “in due course.” Analysts speculate this could include Imperial’s Blu e-cigarette, which holds strong positions in both the U.S. and the U.K.
Abrams is less optimistic. “The tobacco industry in China is extremely complex, even more than in the West, with many factors influencing any potential change,” he says. “To date, STMA/CNTC has been focused on maintaining the status quo. It is a particularly difficult market to penetrate or change. As an example, look at the PMI/CNTC and BAT/CNTC joint ventures that have been in existence for many years with current relatively low market shares. Granted there are many other strategic benefits they have enjoyed, but STMA/CNTC continue to closely control their domestic market.”
Uncertain future
The future of next-generation products in China depends on several factors. The participation of the CNTC is critical, as is regulation of e-cigarettes. As of May 2016, no government agency in China had taken responsibility for regulating e-cigarettes. In the absence of regulations that treat e-cigarettes as either medical devices, pharmaceutical products or tobacco products, they are considered consumer products.
Other issues that will affect the future of the Chinese vapor sector include the price difference between combustible cigarettes and e-cigarettes, which is still significant, as well as the lack of quality control standards. Taxation will also play a role. Zhuang expects this process to take another three to five years. Product innovation will be key, according to Zhuang. “There is no perfect item for the Chinese market yet,” he says. “Chinese consumers are waiting for better vape products and better vape education.”
As the third TFWA China’s Century Conference drew to a close on Thursday, TFWA president Erik Juul-Mortensen spoke of the need for agility if the industry were to maximise the opportunities of the market.
The conference was held at the Four Seasons Hotel, Guangzhou, on March 7-9, in partnership with Asia Pacific Travel Retail Association.
It was hosted by Guangzhou Baiyun International Airport Co.
This year 412 representatives of the duty free and travel retail industry in China and beyond attended the event, an increase on the 388 who attended the previous event, which was held in 2015.
The representatives were from 211 companies, which figure was also up from that of 2015, 197.
By the end of last year, 23.3 percent of the residents of Shanghai, China, aged 15-69, were tobacco smokers, down from 26.9 percent in 2010, according to a story in The Shanghai Daily citing the Shanghai Health and Family Planning Commission’s annual report.
The survey, the results of which were published yesterday, found that 46.8 percent of men and 2.0 percent of women smoked.
A total ban on smoking in indoor public places came into force across the city yesterday.
Shanghai has restricted public smoking since 2010, but the original regulation included bans in only a limited number of places, such as schools and libraries.
The new regulation extends the bans to all indoor public places and some outdoor ones.
The survey, which interviewed 34,400 people in 1,796 public place, found that 78 percent of people were aware of the new tobacco-smoking regulations, and that 95 percent supported them and pledged to observe them.
Commission chief Wu Jinglei said the data showed the city had come a long way since the limited ban was introduced in 2010, but that there were still serious challenges.
The authorities are conducting widespread inspections, focusing on places where smoking is popular, and their week-long crackdowns will continue into April and May. Thousands of volunteers around the city are reporting violations.
Offenders are liable to fines of up to 200 yuan (U$30) and restaurant owners can be fined up to 20,000 yuan for failing to enforce the ban.
