Tag: China

Vapes Evading U.S. Import Duties

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E-cigarette companies have imported hundreds of millions of dollars of disposable products from China into the United States without paying taxes and import duties, according to an AP report.
Last week, U.S. authorities confiscated 1.4 million units of unauthorized single-use e-cigarette products at Los Angeles international airport, with an estimated retail value of more than $18 million. The products were mislabeled as toys, shoes and other items.
Records show that the makers of disposable vapes routinely mislabel their shipments as battery chargers, flashlights and other items. Critics blame ineffective regulation. “The steps toward regulating disposables have been very weak, and that has enabled this problem to get bigger and bigger,” said Eric Lindblom, a former Food and Drug Administration official.
Heaven’s Gifts, the parent company of Shenzhen iMiracle, which manufactures the popular Elf Bar and EB brands, previously described how it could help customers evade import fees and taxes, according to the AP report.
The firm’s website reportedly advertised “discreet” shipping methods, such as mislabeling the content of e-cigarette shipments and declaring a low product value.
Another strategy appears to be shipping e-cigarettes by air rather than sea. Air carriers are not required to disclose the same level of detail about their cargo as ocean vessels.
U.S. tobacco companies have complained that their vaping products cannot compete with such lower priced disposables. Altria Group and Reynolds recently filed cases in California and with the International Trade Commission, respectively, against importers of disposable vapes.
Flavored disposables began pouring into the U.S. shortly before China banned vaping flavors last year. China’s vaping manufacturing sector, which produces the lion’s share of e-cigarettes worldwide, is worth an estimated $28 billion, and the U.S. accounts for nearly 60 percent of the country’s vape exports, according to the China Electronics Chamber of Commerce.
Authorities have encouraged those exports while at the same time curtailing the country’s domestic vaping business.
December 20, 2023
RLX Technology Reports Challenging Quarter

Photo: RLX Technology
RLX Technology reported net revenues of RMB428.1 million ($58.7 million) in the third quarter of 2023, compared with RMB1.04 billion in the same period of 2022. Gross margin was 24.7 percent in the third quarter of 2023, compared with 50 percent in the comparable 2022 quarter. GAAP net income was RMB172.7 million, down from RMB505.2 million in the prior-year period.
“The end of the third quarter of 2023 marked one year since the new regulatory framework for the e-vapor industry came into effect,” said Ying (Kate) Wang, co-founder, chairperson and CEO of RLX Technology, in a statement.
“As a legitimate industry participant, we have remained dedicated to developing our product portfolio to provide adult smokers with compliant, superior-quality products. While we have made some progress with our recovery, we are still facing external challenges, especially the impact of illegal products. We recognize that many users are still unaware of these new regulations, such as flavor restrictions, which has slowed their adoption of the new national standard products.
“To address these near-term obstacles, we will forge ahead with our core strategy: providing a wide variety of quality, compliant products across an extensive range of price points to meet users’ various needs. Meanwhile, we are making efforts to enhance users’ understanding of the new regulations and collaborating with regulators to combat illegal products and create a healthy and orderly market. As a trusted e-vapor brand for adult smokers, we believe that more users will gradually switch to our products as increased awareness of the new regulations and the dangers of substandard, illegal products rises.”
“In the third quarter of 2023, we continued to face significant headwinds due to competition from illegal products,” added RLX Technology Chief Financial Officer Chao Lu. “Against this challenging backdrop, we resolutely executed our strategy and focused on improving profitability, which continues to be our top priority.
“Our strategic cost optimization initiatives have begun to demonstrate positive outcomes, including a consistent reduction in our non-GAAP operating loss and signs of recovery in our non-GAAP net profit margin. Notably, we achieved a second consecutive quarter of positive operating cash flow this quarter, underscoring our business’ resilience in the post-regulatory era. Looking forward, we will remain committed to enhancing our financial performance and delivering sustainable value to our shareholders.”

November 13, 2023
Former STMA Deputy Prosecuted for Bribery

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Former Deputy Chief of China’s State Tobacco Monopoly Administration (STMA) He Zehua has been prosecuted for accepting bribes, according to China Daily.
Zehua was accused of taking advantage of his former positions to seek profits for others, accepting a large amount of money and valuables in return, according to a statement by the Supreme People’s Procuratorate.
Zehua was arrested in July.
November 1, 2023
Former STMA Head Under Investigation

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Former head of China’s State Tobacco Monopoly Administration (STMA) Ling Chengxing is under disciplinary review and supervisory investigation, reports China Daily.
Ling is being investigated on suspicion of violating Communist Party disciplines and China’s laws, according to the Communist Party of China Central Commission for Discipline Inspection and the National Supervisory Commission.
Ling was head of the STMA from May 2013 to July 2018.
The STMA is on the list for the 20th CPC Central Committee’s second round of inspection, which began Oct. 10, and the eighth inspection team of this round recently began its work at the administration.
October 23, 2023
Smoking Persists Despite FCTC

Photo: Tobacco Reporter archive
China continues to grapple with significant tobacco consumption, despite adopting the World Health Organization’s Framework Convention on Tobacco Control (FCTC) two decades ago, reports The Straits Times.
In November 2014, the State Council released a draft on national tobacco control guidelines to meet its obligations under the FCTC. However, the draft never progressed beyond the public consultation phase, which was supposed to be completed by the end of that year, according to the Singpore-based newspaper.
As the world’s largest tobacco producer and consumer, China still boasts an estimated 300 million smokers, constituting nearly a third of global smokers. According to The Straits Times, this phenomenon persists due to various factors including social norms, affordability of cigarettes and limited public education.
Despite efforts such as anti-smoking campaigns and banning smoking in government buildings, many individuals continue to smoke, encouraged by the ubiquity of tobacco shops, low-cost cigarettes and deeply rooted cultural practices.
The State Tobacco Monopoly Administration (STMA), which controls the tobacco industry, also acts as a significant employer, providing jobs to over half a million people across the nation.
In much of China, the tobacco industry is considered a prestigious employer, with its stable income, generous salaries and employee benefits. In surveys of fresh graduates, China’s big tobacco firms—largely state-owned enterprises—are consistently rated some of the best companies to work for, with degree holders happy to take on blue-collar jobs on the factory lines.
Manufacturing some 2.4 trillion cigarettes a year, China’s tobacco industry posted a profit of RMB132 billion ($18.3 billion) in profits in 2022, up nearly 12 percent from the year before.
STMA’s operational arm, the China National Tobacco Corp., does not report sales figures but posted a record taxable income of RMB1.44 trillion in 2022. By comparison, the second-highest taxpayer, the Industrial and Commercial Bank of China, reported taxable income of RMB109 billion.
While the anti-smoking lobby has been urging the government to sever the ties between the industry and its regulator, few expect that to happen, citing a lack of political will.
August 28, 2023
Chinese Helping Boost Russia’s Vape Market

The withdrawal of European and American tobacco manufacturers and the gradual reduction of foreign e-cigarette brands doing business in Russia due to its war with Ukraine has allowed for the growth of Chinese e-cigarettes in Russia.
As Russia’s tobacco industry relies heavily on the support and investment of foreign brands, the withdrawal of international tobacco companies will cause a large shortage in the Russian tobacco market, which will lead to a sharp increase in the price of tobacco products sold in Russia, according to iGeekPhone.
By the end of 2021, there were more than 5,000 stores selling e-cigarettes in Russia, including more than 1,100 in the Moscow region.
According to real estate platform DNA REALTY, the number of tobacco shops in Russia grew by at least 20 percent in 2022, with the bulk of their profits coming from e-cigarette sales.
BAT announced it will withdraw from the Russian and Belarusian tobacco markets in 2023. Philip Morris International (PMI) and its subsidiary Fimo International, are also considering retaining their business in Russia because Russia is the seventh-largest tobacco market for PMI.
Japan Tobacco suspended investments in Russia and Imperial Brands transferred its Russian operations to a successor in Russia.
“E-cigarettes have great potential as alternatives to the tobacco market in Russia, where e-cigarette consumers account for 6.8 percent of the total number of smokers,” the article states. “After the United States and Europe, Russia is the world’s third-largest importer of electronic nicotine delivery systems (ENDS).
“China accounts for 90 percent of the global market. In 2021, China’s exports to Russia reached 82.5 billion rubles. This year it could increase by 35 percent to 111 billion rubles.”
April 10, 2023
China’s Vaping Rules Force Retailer to Close

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Chinese online retailer FastTech is closing in the wake of strict new vaping regulations, reports Vaping360.
In a Dec. 5 post on its customer forum, the discounter blames restrictions introduced after the State Tobacco Monopoly Administration took control of China’s vaping business. The new measures have increased uncertainty, preventing the company from remaining competitive, according to the firm.
China outlawed domestic online vape sales in 2019. The measure was followed by licensing and sales regulations along with the new tax scheme. Hong Kong’s ban on importing Chinese vape products for air shipping to export destinations—which is currently being reconsidered—may also have affected FastTech, which shipped many of its products through the city.
FastTech sold Chinese-made vape products, including many semi-legal clones and copies of well-known products, to overseas customers at sometimes near-wholesale prices and shipped them inexpensively.
According to Vaping360, there remain a number of FastTech competitors in China operating on a similar business model.
December 9, 2022
China to Restrict E-Cigarette Shipments

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China’s State Tobacco Monopoly Administration (STMA) plans to limit the number of vapor products a person can carry on them, reports The Global Times.
According to a notice published Nov. 23, a person can possess a maximum of six “smoking devices,” 90 e-cigarette cartridges and 180 mL of e-liquid.
On the same day, the STMA and the State Post Bureau jointly announced restrictions on the delivery of vapor products. Each shipment may contain a maximum of two “sets,” six cartridges and 12 mL of e-liquid.
Each recipient is allowed to accept delivery of no more than one shipment of vapor products per day.
In April, China’s tobacco regulator approved mandatory national standards for e-cigarettes that came into effect in October.
November 23, 2022
Snowplus Obtains China Production License
China’s State Tobacco Monopoly Administration has granted Snowplus Tech a production license that allows the company to produce 80 million pods annually. In a press note, the company said it will now take on the “challenge and responsibility to help lead the development of a healthy and sustainable vaping industry.”
While the U.S. government has strict regulations for vaping products, there has been a rise in fake or counterfeits of popular brands in the country, which has led to an increase in incidents relating to poorly manufactured variations, according to Snowplus. This, the company says, highlights the importance of using a reputable, tested and certified vape product.
Snowplus stresses that its products are designed in-house, developed by experts in specialist R&D centers and manufactured in one of the largest, most advanced e-cigarette facilities in the world.
Established in January 2019 and backed by investors such as Zhen fund and Sequoia, Snowplus has more than 60 criteria for testing to ensure product safety and quality. With three CNAS certified research laboratories, its safety protocols are recognized and interoperable by 65 institutions in 50 countries, according to the company.
“There is an increasing trend for cheap counterfeit vapes on the market, which we find deeply concerning,” said Derek Li, Snowplus co-founder and head of overseas markets. “That is why we have invested heavily in product research to create products that enhance the vaping experience while ensuring it is as safe as possible.”
Snowplus has invested over $2 million in quality and safety research, and to help prevent e-liquid from leaking out of products, it conducts impact tests in variable temperature, humidity and pressure conditions, according to the company. In addition, Snowplus’ batteries pass two tests before assembly to “guarantee that devices can operate in different environments,” the firm wrote in its press release.
November 16, 2022
Sales Down, Margins Up for RLX Technology

Photo: Tobacco Reporter archive
RLX Technology reported net revenues of RMB1.04 billion ($146.8 million) in the third quarter of 2022, down from RMB1.68 billion in the same period of 2021. The decrease was due primarily to the suspension of store expansions and the discontinuation of older products during the transition to the new national standards, according to the Chinese vapor product manufacturer.
Gross profit was RMB522 million for the quarter compared with RMB656 million in the same period of 2021. Gross margin was 50 percent compared with 39.1 percent in the prior year period. RLX Technology attributed the improvement to a favorable change in channel mix. Because the company gradually terminated partnerships with distributors who did not obtain wholesale licenses during the transition period, its sales contribution from retail stores increased as RLX began to directly provide products to these retail stores. The company benefited also from a decrease in direct cost related to promotional activities.
“During the third quarter of 2022, we remained dedicated to preparing for a smooth transition to the new national standards, which came into full effect on Oct. 1, 2022. Specifically, we wound down shipments of our older products and gradually switched to the National Transaction Platform on a regional basis. We have now achieved full geographical coverage nationwide,” said Ying Wang, co-founder, chairperson of the board of directors and CEO of RLX Technology, in a statement.
“In addition to our efforts to proactively adapt to the new standards, we have focused on fulfilling our social responsibilities, which we see as one of our core competitive advantages. We recently published our annual corporate social responsibility report, summarizing our endeavors with respect to market responsibility, R&D investment, environmental protection, employee career development and corporate governance. I am proud to share that our latest S&P CSA ESG score ranked ahead of 67 percent of our global peers, representing a powerful commendation of our commitment to sustainability and ESG best practices.”
“We delivered net revenues of approximately RMB1 billion in the third quarter, recording a sequential decrease mainly due to the discontinuation of older products during the transition to the new national standards as well as the second quarter’s high comparison basis mainly attributable to frontloading of sales in anticipation of the discontinuation of older products. We remain confident that our diversified portfolio will continue to satisfy adult smokers’ needs and that our sales will gradually recover,” said Chao Lu, chief financial officer of RLX Technology.
“Meanwhile, our continuous efforts to improve operational efficiency are proving effective, evidenced by a 30.9 percent quarter-over-quarter decrease in non-GAAP operating expenses. However, our profitability in the coming quarters will be adversely affected by the application of 36 percent consumption tax to e-cigarettes manufacturers since Nov. 1, 2022. Cost control measures will remain at the forefront of our strategic initiatives as we navigate the evolving regulatory environment while maintaining our sustainable long-term growth.”
November 16, 2022