Tag: China

  • China E-Cigarette Exports to Exceed $27 Billion

    China E-Cigarette Exports to Exceed $27 Billion

    Photo: Taco Tuinstra

    The value of China’s electronic cigarette exports will reach CNY186.7 billion ($27.82 billion) this year, reports Pandaily, citing the Blue Book of Electronic Cigarette Exports, which was released by the China Electronics Chamber of Commerce  on June 14.

    According to the Blue Book, China exported e-cigarettes with a value of CNY138.3 billion in 2021, 180 percent more than in the previous year.

    In the first quarter of 2022, the value of Chinese e-cigarette exports stood at CNY45.3 billion. Most of those exports (58 percent) went to the United States, followed by the European Union and Britain (24 percent) and Russia (8 percent). Southeast Asia and the Middle East accounted for 5 percent and 4 percent of Chinese e-cigarette exports, respectively.

    In 2021, there were more than 1,500 domestic e-cigarette manufacturing and brand enterprises, more than 190,000 e-cigarette retail outlets and nearly 100,000 e-cigarette supply chains and merchandise service enterprises. The domestic e-cigarette industry directly employs about 1.5 million people and indirectly employs 4 million people, totaling about 5.5 million people.

    After allowing the vapor product sector to operate in a legal gray zone for years, the Chinese government has started crafting a regulatory framework, placing e-cigarettes under the jurisdiction of the State Tobacco Monopoly Administration.

    It has been issuing standards and requirements for production, wholesale and retail, as well as the protection of minors.

  • Flow Stops Sales of Flavored Vapes in China

    Flow Stops Sales of Flavored Vapes in China

    Photo: Max

    E-cigarette manufacturer Flow will stop producing non-tobacco flavored e-liquid cartridges for the Chinese market to comply with new regulations, reports Pandaily.

    In November 2021, the Chinese government granted the State Tobacco Monopoly Administration jurisdiction over the vapor business. Since then, authorities have published a series of new rules. Among other things, e-cigarette manufacturers must sell their products through authorized channels. Retailers, meanwhile, are required to buy all vapor products through a “unified platform” and restrict the liquids sold on the Chinese market to tobacco flavors.

    According to the Blue Book of the E-Cigarette Industry, there were nearly 190,000 e-cigarette retail stores in China in 2021, including 138,000 authorized stores, 47,000 specialty stores, and 5,000-7,000 “collection” stores.

    Currently, fruit-flavored e-cigarettes account for more than 70 percent of sales in many retail outlets.

  • China Cracks Down on Tobacco Counterfeiters

    China Cracks Down on Tobacco Counterfeiters

    Photo: Tobacco Reporter archive

    Chinese authorities seized 2.1 million counterfeit cigarettes, nearly 100,000 metric tons of leaf tobacco and about 1,700 cigarette-making machines between 2017 and 2021, reports China Daily. They also detained 44,000 suspects. The law enforcement actions prevented CNY100 billion ($15 billion) in lost tax earnings, according to the Ministry of Public Security (MPS), which coordinated its campaign with the State Tobacco Monopoly Administration (STMA).

    The joint crackdown targeted the production and distribution of counterfeit cigarettes in key areas. Authorities focused on disrupting the criminal networks’ logistics, strangling the supply of production materials for fake cigarettes at the source.

    Officials insisted the crackdown on counterfeiting will continue, with emphasis on combating activities such as illegal sales of leaf tobacco and illegal transport of cigarettes, and on cutting off the underground supply chain for the production and sale of counterfeit cigarettes.

  • China: E-Cig Licensing Rules Explained

    China: E-Cig Licensing Rules Explained

    Photo: Taco Tuinstra

    The law firm Kelller & Heckman has published an article summarizing the requirements for obtaining an e-cigarette manufacturing license in China.

    The State Tobacco Monopoly Administration (STMA) has now published a rule outlining the process for Chinese e-cigarette manufacturers to obtain the required manufacturer license. This rule applies not only to manufacturers producing e-cigarettes for the domestic Chinese market, but also to the manufacturing of e-cigarettes solely for export.

    According to Keller & Heckman, manufacturers will have to prepare many materials for their license application. Among other information, they will have to provide proof of suitable funds, production and sales information, including the balance sheet, income statement, cash flow statement and production and sales statistics.

    E-liquid manufacturers will have to supply a license for operating dangerous chemicals and identify the sources of nicotine used in the past three years. Applicants for export must submit materials explaining the export business and the scale of export, including the customs declaration forms for the past three years

    Remarkably, the rules require companies manufacturing exclusively for export to obtain trademark registration in China. Although Keller and Heckman considers it unlikely that the STMA intended to impose the Chinese trademark registration requirement on exporters, the law firm advises clients to seek clarification from the authorities.

  • A New Sheriff in Town

    A New Sheriff in Town

    Photo: Taco Tuinstra

    China’s tobacco monopoly asserts its authority over vapor products.

    By George Gay

    It is wise to take seriously the warning that you should be careful what you wish for.

    At the Global Tobacco and Nicotine Forum (GTNF) in London in September, which was held about six months after new vaping industry regulations had been publicly mooted in China, one speaker told those listening how vaping industry regulations were overdue, necessary and to be welcomed. At the time, I assumed this welcome was predicated on the belief that the regulations would be beneficial—that they would allow the industry to grow in a stable way and, in doing so, serve the interests of the businesses involved, smokers wanting to quit their habit, and society at large while, at the same time, helping to remove from the industry cowboy operators and substandard products.

    Things have moved on since then. The regulations, formulated by the State Tobacco Monopoly Administration, were foreshadowed at the end of 2021, published in March 2022, became effective from May and are due to come fully into force in October.

    The question is: Are the regulations beneficial? I would say they are far from ideal, but then ideal would probably have been an ambition too far. Looking on the bright side, they are better than a ban, as has been introduced in Hong Kong and elsewhere, and, furthermore, given the considerable investment in these regulations and the systems necessary to operate them, unless some unforeseen catastrophe occurs, they seem to rule out a ban being introduced, at least in the short term to medium term. But they will undoubtedly rein in the country’s vaping industry—severely in some areas.

    The rise of China’s vaping industry has been hugely impressive, and the future had held out the offer of phenomenal growth, but now, predictions must surely be revised downward, particularly in respect of the domestic market, probably much less so in respect of exports. But in taking stock of this situation, it is necessary to bear in mind the relative importance of the huge and so far largely untapped domestic market.

    Domestic Sales Versus Exports

    One of the provisions of the regulations that will likely have upset those businesses and consumers looking for beneficial outcomes, assuming consumers in China tend to prefer the sorts of vaping products most popular in other countries, is the ban on flavored products other than those with tobacco flavors. They are unlikely, too, to have been overjoyed by a ban on nicotine-free products.

    On the other hand, the industry can take heart from the fact that products with flavors other than tobacco and those that are nicotine-free may be manufactured for export where such products do not conflict with the laws of the country of destination. Basically, export products must comply with the laws, regulations and standards of the destination country, though, where the country of destination does not have vaping regulations in place, export products will have to comply with China’s regulations.

    This difference between the requirements for local and export products raises an interesting question. The ban on the sale of nontobacco flavored and nicotine-free vaping products in China seems to be based, at least in part, on the idea that products with these properties are the ones favored by young people, who should be discouraged or, where minors are concerned, banned from vaping. This seems to be an ethical stance, but it is difficult to see how, given such an ethical stance, exports of such products could be allowed, even to countries that do not ban them.

    The regulation’s authors say, in translation, the “Measures for the Administration of Electronic Cigarettes” are being put in place in order “to further strengthen the supervision of new tobacco products such as e-cigarettes, regulate the market order, ensure the health and safety of the people, and promote the legalization and standardization of industrial governance in accordance with the Tobacco Monopoly Law of the People’s Republic of China, the Law of the People’s Republic of China on the Protection of Minors [and] the Regulations on the Implementation of the Tobacco Monopoly Law of the People’s Republic of China.” The regulations are said to cover the production, sale, transport, import and export, supervision and management of vaping products.

    Market Order

    There seem to be some curiosities in the regulations. From my reading, the regulators have gone down the U.S. route in deeming electronic cigarettes to be tobacco products, at least for the purposes of incorporating them under expanded tobacco laws. And while they refer to “vaping products,” they tend to refer to the use of these products as involving “smoking” rather than “vaping.” Having said that, I should point out that these are issues picked up by Western eyes from a translation of the regulations, which, unsurprisingly, have gone through a number of revisions.

    One of the things that jumps out at a Westerner from the stated aims of the regulations is the idea of regulating “the order of the market.” China’s economic system is such that, in part, the regulations are concerned with supply-side matters whereas in much of the rest of the world, such considerations would not come into the picture. Elsewhere, the market is controlled, if that is the right word, by demand, so if it becomes oversupplied, prices fall and, eventually, companies go bust. Or that’s the basic theory. In reality, some companies are considered to be too “important” to fail and have to be bailed out by taxpayers.

    The regulations aim to balance supply with demand through such mechanisms as setting production and sales targets, overseeing imports, controlling the expansion of companies, concentrating production sites, restricting product transport and overseeing wholesale and retail trading.

    Some of these controls are to be exercised through the licensing and registration of existing and new manufacturers, wholesalers and retailers, and even the expansion of their operations, or other changes, including moves into the trading of imported products. One of the requirements for obtaining a license will be that the applicant has access to sufficient funds to carry out whatever enterprise it wants to engage in, which, along with certain other restraints, some observers believe will tend to favor the bigger companies and weed out smaller ones. Again, this weeding out of the smaller players seems to be following the U.S. route, though by using a registration requirement applied to the company rather than the product.

    Big Versus Small

    Whether you view such provisions as good or bad will probably depend on whether you are a small vaping industry operator in China likely to be driven out of business or a big one that will benefit from fewer competitors. Of course, if China is successful in using such a system to stabilize the market and ensure underfunded companies don’t go bust with all the social fallout such failures can cause, it will probably be seen to have done a good job. But there are clearly dangers in disadvantaging smaller businesses working within an industry that, because of its youth, is dependent on innovation for its success, commercially and socially.

    In addition, the market will be closely controlled by “a unified national e-cigarette transaction management platform” through which manufacturers, wholesalers and retailers will have to process and record all their trading and transactions. Wholesalers wishing to trade in imported vaping products will have to obtain permission to do so, and the imported goods will have to comply with all local technical requirements and regulations and be sold, appropriately labeled, through the transaction management platform.

    There are provisions in the regulations for dealing with counterfeit and inferior products and the infringement of intellectual property rights, including through the encouragement by rewards of people reporting cases of the illegal production and sale of vaping products.

    The regulations will govern registered trademarks along with warnings and other messages applied to tobacco packaging, and they hold that e-cigarette advertising will be in line with tobacco advertising, which is consistent with their being regarded as tobacco products. E-cigarette exhibitions aimed at promoting such products are banned.

    Sales of vaping products through “information networks” other than the transaction management platform are banned, as are sales through vending machines and sales to minors, with the onus being on retailers to check identity documents where the age of the would-be purchaser is in doubt.

    The regulations will see the introduction of a product traceability system, and they will control the sites of retail outlets, including in respect of banning such outlets “around” schools. And they will provide for quality control through the inspection, testing, monitoring and evaluation of products under institutions set up to conduct technical reviews based on the submission of application materials, such as inspection and testing reports. Those engaged in production will be required to establish product quality assurance systems and be responsible for the quality of their products.

    Meanwhile, in April, the State Administration for Market Regulation, the standards committee, published the national standards for electronic cigarettes (GB 41700-2022), which provides, among other things, details about the technical requirements for vaping products and relevant test methods, safety standards, permitted ingredients and nicotine levels and concentrations.

    Encouragingly, some reports indicate that the newly regulated industry players will be encouraged to carry out vaping industry R&D in respect of raw materials, finished products and risk assessments, and that they will be encouraged to promote the application of green technology and other environmentally friendly practices.

    George Gay is Tobacco Reporter’s European editor, but his territory spans the globe. Based in London, George has covered the tobacco industry since 1982, initially for a U.K.-based publication and since 2004 for Tobacco Reporter. George’s understanding of industry issues, combined with his keen sense of observation and dry wit, have earned him a loyal following among Tobacco Reporter’s readers.
  • China Drafts Guidelines for E-Cig Production

    China Drafts Guidelines for E-Cig Production

    Photo: Taco Tuinstra

    China’s tobacco regulator on Jan. 25 released draft rules for e-cigarette production, according to Reuters.

    The State Tobacco Monopoly Administration said it would “reasonably” control manufacturing to prevent overcapacity.

    The regulator said it would ban foreign investment in domestic e-cigarette retail operations while reviewing foreign involvement in production, requiring vapor companies that want to list in China or abroad to obtain pre-approval.

    China has in recent months been tightening its scrutiny of e-cigarettes, and last year amended its tobacco monopoly law to include vaping products. Since then, it instructed e-cigarette and vaping companies to sell their products only through authorized channels, and barred vendors from selling e-cigarette flavors other than tobacco.

    Earlier this month, China unveiled technical standards for e-cigarettes and vaping products.

    China’s cigarette industry operates under a state-run monopoly directly controlled by the STMA, which dictates pricing and distribution for brands and generates tax income for the government.

  • Chinese Vapers Stocking up Ahead of Flavor Ban

    Chinese Vapers Stocking up Ahead of Flavor Ban

    Photo: Victor Moussa

    Vapers in China have reportedly been stocking up on flavored liquids in anticipation of a ban. A staff member at a RELX store in Shanghai told Sixth Tone that his shop had seen an increased demand for flavored pods since the government announcement, with grape and cola-flavored varieties selling out almost instantly.

    On March 11, the State Tobacco Monopoly Administration published the final “Management Rules for E-cigarettes,” which includes a ban on domestic sales of nontobacco-flavored e-cigarettes. The rules are scheduled to take effect May 1.

    The move was welcomed by anti-vaping groups such as the Campaign for Tobacco-Free Kids, which said the rule would help prevent children from becoming smokers. “Children who use e-cigarettes are more than twice as likely to use cigarettes in the future, according to the World Health Organization,” said Yolonda Richardson, executive vice president for the Campaign for Tobacco-Free Kids, in a statement. “China’s new policy is the right move to protect Chinese kids from these addictive products.”

    The flavor ban is part of a long list of new requirements for the vaping business. China’s new rules also ban refillable products and synthetic nicotine while limiting the strength of e-liquid to 20 mg/mL.

    Manufacturers, wholesalers and Chinese retailers will be required to conduct all business on a “unified national electronic cigarette transaction management platform,” and exports will be restricted to vapor products allowed in the destination countries.

    The new rules will force e-cigarette sellers like RELX to sell competitors’ brands in their Chinese stores—something they don’t do currently.

    With more than 300 smokers, China remains the world’s largest cigarette market, representing considerable potential for vapor companies. The country’s domestic e-cigarette market has grown at a rate of 70 percent a year since 2013, according to the Global Times, and is valued at about $1.3 billion.

    China exports $15.6 billion of vaping products annually, according to the Shanghai Daily.

  • Sneak Peek at New Vapor Rules in China

    Sneak Peek at New Vapor Rules in China

    Photo: Kajsym Yemelyanov

    Starting May 1, China will begin enforcing the licensing rules for e-cigarette production, wholesale and retail entities. The new rules, the draft of which was first announced in December 2021, apply to all hardware and e-liquid products, including all components and ingredients.

    “The administrative department in charge of tobacco monopoly of the State Council takes charge of national supervision and management of electronic cigarettes, and is responsible for the formulation and organization of implementing electronic cigarette industry policies,” the regulations state. “The administrative department in charge of tobacco monopoly of the State Council shall organize professional institutions for technical review of electronic cigarette products based on inspection and testing reports and other application materials.

    “Electronic cigarette products not sold in China and only used for export shall comply with the laws, regulations and standards of the destination country or region,” the rules state. “If the destination country or region does not have relevant laws, regulations and standards, they shall comply with China’s relevant laws, regulations and standards.”

    Critically the new rules also ban nontobacco flavors and the sale of open systems. The importation of any vaping related products, such as pre-mixed e-liquids, must also be approved by Chinese authorities, according to the regulations.

    Any company that produces e-cigarettes in China must now get a license. If a company wants to expand its production or product portfolio, the company must garner approval from the State Tobacco Monopoly Administration. All nicotine must be tobacco derived and purchased from approved sellers in China. Chinese regulators will also establish a comprehensive e-cigarette traceability system to keep track of vaping products.

    “Electronic cigarette wholesale enterprises shall not provide electronic cigarette products to units or individuals that are not qualified to engage in electronic cigarette retail businesses,” the regulation states.

    The rules also specify that “enterprises or individuals that have obtained the tobacco monopoly retail license … shall purchase electronic cigarette products from local … wholesale enterprises, and shall not exclusively operate the electronic cigarette products sold on the market.”

    According to an industry expert, this means all retail outlets must sell multiple brands and not just a single brand. Traditionally, companies such as RELX only sold their own brands in their stores.

    Additionally, authorities will establish a “unified national electronic cigarette transaction management platform” that e-cigarette industry businesses that have obtained tobacco monopoly licenses must conduct all transactions through.

    The rules also encourage stakeholders to report illegal activity. “Rewards will be given to units and individuals who have made meritorious deeds in reporting cases of illegal production and sales of electronic cigarette products, e-atomization material products and electronic cigarette nicotine,” the rules state.–T.S.D.

  • China Mulls Ban on Flavored E-Cigarettes

    China Mulls Ban on Flavored E-Cigarettes

    Photo: Victor Moussa

    China will ban nontobacco flavors in e-cigarettes if an updated draft of standards for the vaping industry becomes law, reports Shine.

    In November 2021, China’s State Council amended the country’s tobacco monopoly law to include vapor products and requested public input on its proposed regulations for the segment.

    While the original proposal appeared to permit nontobacco flavors, the new draft, published on March 11, underlines the importance of reducing the appeal of e-cigarettes to youth, stating: “Flavors other than tobacco taste shall not be offered in products.” To be specific, 21 additives, referring to tastes like plum, rose and orange, are removed from the list.

    As some U.S. states and European countries already have flavor bans in place, industry experts believe the new regulations may have a greater impact on the domestic market rather than exports.

    In an interview with Securities Times, an unnamed industry insider said sales volumes of tobacco-flavored e-cigarettes in the domestic market are dwarfed by other flavors.

    The March 11 publication sent stocks of Chinese vapor companies tumbling. Shares of RLX Technology, which had just reported strong revenues for 2021, dropped more than 36 percent and closed at $1.49 on the New York Stock Exchange on Friday.

    The updated draft is now available on the State Tobacco Monopoly Administration’s website. The administration is asking for public feedback until March 17.

  • China Probes Huabao Founder

    China Probes Huabao Founder

    Photo: Andrey Popov

    Chinese regulators have announced an investigation into Chu Lam You, the majority shareholder in Huabao International Holdings, China’s largest e-liquid, tobacco flavoring and fragrance company.

    One of China’s richest self-made women, Chu is being investigated for unspecified “suspected disciplinary violations,” according to a Hong Kong stock exchange filing. The company said in a statement that it was informed of the investigation by its subsidiary Huabao Flavours and Fragrances. “Up to the date of this announcement, the company has not been provided with any details of the nature of the suspected violations of Ms. Chu that [are] currently being investigated. The business operation of the group remains normal,” the company stated.

    Huabao added that the subsidiary received a case filing notice from the Leiyang City Supervisory Committee indicating that the probe was being carried out by the Chinese Communist Party and the local government, according to the Financial Times.

    Launched in 1996, Huabao produces flavors and fragrances used by tobacco manufacturers, including for the e-cigarette or vaping market, as well as food companies.

    Like many high-profile Chinese businesspeople, Chu has also served on various industry and government advisory committees. The probe into Chu comes as China’s long-running anti-corruption campaign gathers momentum as Xi seeks to secure a historic third term.