Tag: China

Great Wall Factory Celebrates Cigar Culture

The Great Wall Cigar Factory held its sixth cigar festival in Shifang, China, Nov 5-8.
Nearly 600 guests gathered in Shifang to experience the cigar culture and lifestyle in the “Hometown of China Cigars.” At the same time, the event was broadcast live, connecting the main venue to branch venues in more than 100 cities across the country, and nearly 10,000 people watched it simultaneously. The event was also broadcast live online on social media, where it attracted 23,000 participants.
Guests of honor included Cuba’s ambassador to China, Carlos Miguel Pereira, and Briunny Garabito Segura, the ambassador of the Dominican Republic to China.
To commemorate the Chinese Zodiac Year of the Ox in 2021, Great Wall Cigar released two limited edition cigars, Great Wall Chinese Zodiac Limited Edition Year of the Ox and Great Wall Collector’s Edition Year of the Ox. The Chinese Zodiac Limited Edition is limited to 5,000 boxes and the Collector’s Edition is limited to 40 boxes.
During the event, Alibaba Group released a blockchain production traceability system jointly developed with Great Wall Cigar. Consumers can scan the identification mark on the cigar box to understand the detailed information of each step of the cigar production from tobacco leaf to finished product.
Located in the northwestern part of Sichuan Province, Shifang has cultivated cigar tobacco for more than 400 years. Founded in 1918, Great Wall Cigar is the largest cigar manufacturer and only pipe tobacco manufacturer in China.
November 9, 2020
Smoore Stock Soars After Hong Kong IPO
The share price of Smoore increased significantly after its launch on the Hong Kong Exchange last week. After an initial public offering of HKD12.40 ($1.60) per share, the stock closed at HKD31 on Friday.
“As the global leader in offering vaping technology solutions, Smoore’s mission is to build the world’s leading vaping technology platform to bolster the innovation and development of vaping technology with a wide range of applications,” said Smoore spokesperson Cloris Li.
“In the next three to four years, Smoore plans to invest more in improving production capacity and upgrading equipment, including setting up new manufacturing facilities and research institute of group level as well as installing automated production lines and IT equipment.”
According to Frost & Sullivan, a business consulting firm, Smoore is the world’s largest vapor device manufacturer in terms of revenue, accounting for 16.5 percent of the total market share in 2019.
“In the past 14 years, we have been firmly grounded to focus on advanced R&D technology, strong manufacturing capacity, wide-spectrum product portfolio and diverse customer base. We are glad about what we have achieved and will take this as a new start,” said Li.
The Shenzhen-based company offered 574 million shares, according to the company’s prospectus, and had indicated the stock would be priced between HKD9.60 and HKD12.40 per share.
“After being listed on the Hong Kong stock market, Smoore is probably going to be able to invest more in the R&D and application of heating technology, for instance, in the medical atomization arena,” said Li. “Meanwhile, we are able to better serve our clients and provide a better life for our employees. As a leader in this field, Smoore is also able to play a more important role in shaping the industry and the whole of society.”
July 13, 2020
Smoore Raises $918 Million in Hong Kong

Photo: Timonthy Donahue
Smoore International has raised $918 million in its initial public offering (IPO) at the Hong Kong Stock Exchange, reports Reuters. The deal is the largest IPO in Hong Kong since the start of 2020.
The Shenzhen, China-based firm offered 574 million shares, according to the company’s prospectus, and had indicated the stock would be priced between HKD9.60 ($1.24) and HKD12.40 per share.
The largest investors were Huaneng Trust, which took $80 million worth of stock, and Prime Capital which took $50 million, according to Smoore’s prospectus.
In 2019, Smoore reported a profit of CNY2.17 billion ($307.8 million), up from CNY733.9 million one year earlier.
Smoore is due to start trading on the Hong Kong Stock Exchange on Friday.
July 8, 2020
Former STMA Official Gets Life in Prison

Photo: Andrianocz | Dreamstime.com
Zhao Hongshun, former deputy head of the State Tobacco Monopoly Administration (STMA), was sentenced to life imprisonment, deprived of political rights for life and had all his personal property confiscated on June 18 for taking bribes worth more than RMB90 million ($12.7 million), according to a news release issued by The Supreme People’s Court of the People’s Republic of China.
The Huai’an Intermediate People’s Court in East China’s Jiangsu province issued the verdict, saying the money involved in Zhao’s case will be turned over to the state treasury. Zhao said in court he would not appeal.
According to the complaint, Zhao took advantage of his positions, including that of deputy director and deputy head of the economic operation department of the STMA and deputy director of the Anhui Provincial Tobacco Monopoly Administration, to assist individuals and companies in contracts related to the printing of cigarette labels, tobacco advertising business and personal promotion from 2002 to 2018.
Zhao was placed under investigation by China’s top graft watchdogs in February 2019. He was expelled from the communist party and removed from public positions and arrested in July. In September 2019, Zhao was charged with bribery.
June 24, 2020
The New Normal

Photo: Taco Tuinstra
Shenzhen’s vapor hardware manufacturers have resumed operations, but it’s hardly business as usual.
TR Staff Report
The Covid-19 outbreak hit Shenzhen hard. From mid-January to mid-February, authorities ordered factories and offices in the southeastern Chinese city to suspend their operations to prevent the spread of the coronavirus. That had severe implications for many supply chains, including those for vapor products.
Shenzhen is the world’s workshop for a wide variety of electronic products ranging from cutting-edge drones to ordinary lightbulbs. Its factories produce not only Apple’s iconic iPhone but also the anonymous circuitry that powers appliances around the globe. Many of the world’s electronic nicotine-delivery system (ENDS) manufacturers, too, are based in Shenzhen.
Because China was the first country to be hit by Covid-19 in 2019, it was also the first to start easing its lockdowns. Most Shenzhen ENDS companies restarted their operations in the second half of February. However, the disruption of the lockdown combined with pre-Covid challenges—such as the Chinese government’s November 2019 directive to cease internet sales of vapor products—and new working requirements such as social distancing are presenting formidable obstacles for ENDS manufacturers as they resume operations.
Tobacco Reporter spoke with Amei Zhang, senior economic analyst and China specialist at TMA, about the outlook for Shenzhen as the world’s vapor product manufacturing capital.
Tobacco Reporter: Please illustrate with some statistics the importance of Shenzhen to the global vapor business.
Amei Zhang: Over the past decade, the e-cigarettes produced in Shenzhen accounted for 90 percent of global ENDS production. According to statistics of the Electronic Cigarette Industry Committee of the China Electronics Chamber of Commerce, as of August 2018, there were 678 e-cigarette factories in China and there were 1,558 companies operating in the “electronic atomizer” category. Shenzhen-based manufacturers account for 86.7 percent of those 678 makers.
How severe was the Shenzhen lockdown? Were businesses required to cease operations altogether, or could they continue manufacturing at a low level?
On the evening of Jan. 23, Guangdong Province initiated a first-level response to a major public health emergency, and as a result, all factories were closed until Feb. 10. During that period, none of them could continue manufacturing even at a low level. Many ENDS companies restarted their operations between Feb. 16–19 while some started later because they had to wait for approval from the government.

Advertisement
By how much did the output of Shenzhen’s ENDS manufacturers decline following the lockdown?
There is no number regarding total output of ENDS production decline, but there is information about some specific cases.
The period between New Year’s Day and the Spring Festival on Jan. 24 is the traditional peak season for sales, but the outbreak of the coronavirus ended the peak season early. Electronic cigarettes companies faced difficulties in funding, sales and getting back to work.
Flow, a brand manufactured by Flowclub International, reportedly did not pay its employees for two months while [also] laying off 70 percent of its workforce. SnowPlus, another famous brand, laid off more than 50 percent of its employees. After the negative information about Flow became public, dealers began to sell many goods to pay off debts. Distributors reduced their product prices from CNY20 per piece to as low as CNY10 per piece while the official retail price of Flow is CNY39 per piece.
However, some brand-name e-cigarettes have proved very resistant to risks during the epidemic. Bode Electronic Cigarette for example on Feb. 18 started recruiting workers for more than 100 positions involving sales, operations, research and development, products and other departments.

Advertisement
Do you expect customers to reduce their reliance on Shenzhen by sourcing more vapor products from other sources in the wake of the crisis? Are there alternatives to Shenzhen?
In my view, currently, it is nearly impossible for the ENDS customers to reduce their reliance on Shenzhen or find alternatives. The reasons are as follows: 1) Many of Shenzhen’s e-cigarette producers have been in business as producers of small electronic devices since the 1990s and have lots of experience conducting foreign trade; 2) the supply chain is located in Shenzhen, which provides geographic convenience for upstream, middle stream and low stream companies; 3) over the past decade, those Shenzhen companies have accumulated overseas customers and strong skills in design and manufacturing—characteristics that help them easily attract capital from the domestic market. In short term, Shenzhen’s ENDS manufacturers are unreplaceable.
There are some signs, however, that should not be neglected. In Indonesia, there are now about 200 producers and traders of new-type tobacco products, although the Indonesian government prohibited e-cigarettes in November 2019.
There are also signs that Shenzhen companies have adjusted their supply chains to deal with the high tariffs from the U.S. in 2018. They split accessories, declare the origin as a third country or simply set up a factory in a third country to avoid U.S. tariffs. But recently, the United States has begun to strictly investigate whether the origin of goods and the names of declared products are consistent with the actual situation.
Whether the e-cigarette manufacturing supply chain [will] be gradually transferred overseas remains a question.
How do you expect the crisis to impact the Shenzhen manufacturers in the future?
In this pandemic, larger and more competitive companies have more chance than small companies to survive. Therefore, the ENDS sector may reshape its current structure while small or less competitive companies are likely to merge, be acquired or go out of business.
It has been reported that Flowclub is now producing face masks, which may help the company to compensate for the losses it incurred during the lockdown.
Whether Shenzhen will recover its previous output is difficult to say.
June 1, 2020

Double Whammy

First, vapor companies selling in China lost the internet. Then the coronavirus closed their physical stores.

By Mark Miao

In 2019, the Chinese tobacco industry recorded a mid-single-digit growth in current sales value terms and a slight decline in volume terms, largely thanks to new product development in the vapor market and consumers’ growing preference in premium and mid-priced cigarettes due to the increasing disposable income. As the largest category in tobacco, cigarettes achieved a value of CNY1.5 trillion ($211.71 billion) in 2019, a 3.1 percent growth rate in current sales value. However, sales volumes stagnated in 2019 at 2.3 trillion sticks. Under China’s longstanding state tobacco monopoly system, the China National Tobacco Corp. (CNTC) dominates the nation’s tobacco supply from manufacturing to retailing, leaving a tiny space for international brands (Table 1).

Table 1:

Company	Volume exposure to China as share of total cigarette sales in 2019
China National Tobacco Corp.	98.47 percent
Philip Morris International Inc.	0.13 percent
British American Tobacco PLC	0.10 percent
Japan Tobacco Inc.	0.02 percent

Slim cigarettes volume growth rate surpasses superslim in 2019

In terms of cigarette sizes, slim cigarettes surpassed superslim cigarettes in 2019 in sales volume growth rate. As an innovation of cigarettes, the introduction of slim and superslim cigarettes has attracted the attention of consumers, some of whom are eager for an alternative to standard cigarettes. While there are technical challenges in maintaining aroma, comfort and satisfaction in superslim cigarettes, these can be addressed, and the potential consumer benefits of slim cigarettes quickly attracted the attention of local tobacco monopoly administrations. By the end of 2019, there were more than 80 premium slim cigarette brands on the market, which together account for 80 percent of the slim cigarette market, according to the State Tobacco Monopoly Administration (STMA).

Smoking control, production drop and declining smoking prevalence

The decline of cigarette volumes in 2019 can be attributed to stricter enforcement of smoking restrictions in public areas, lower production and declining smoking prevalence. The first public smoking restrictions date from December 2013. The Communist Party of China Central Committee and the State Council have asked officials to take the lead in adhering to the smoking ban in public areas such as schools, hospitals and other venues. On Nov. 23, 2014, the Legislative Affairs Office of the State Council released a draft regulation crafted by the National Health and Family Planning Commission, which intended to ban smoking in all indoor public areas nationwide. This marked the first time that China formulated regulations to control public smoking comprehensively throughout the country. Since the draft regulation was released, at least 20 cities in China have passed regulations to control smoking in public areas.

According to the National Bureau of Statistics, cigarette production in November 2019 was 12.4 percent lower than in November 2018. Production also fell in August, May and June. Cigarette sales are likely to drop further. Under the Healthy China 2030 Initiative that was implemented in 2016, China aims to lower the proportion of smokers above the age of 15 to 20 percent by 2030.

Despite these developments, the sales value of cigarettes has not been severely impacted thanks largely to the tobacco industry’s significant tax contributions to the state’s revenue. Taxes paid by CNTC account for more than 6 percent of China’s fiscal revenue. In 2018, CNTC paid CNY1 trillion in taxes, and in 2019 the figure increased by 17.7 percent. Moreover, revenues from tobacco sales have become an important source of income for local governments, such as Yunnan Province, where the restriction of smoking has proved to be a tough task.

Illicit manufacturing

On Jan. 20, 2020, the STMA announced its progress in the crackdown on tobacco counterfeiting and smuggling. A total of 10,826 cases involving counterfeit cigarettes with value above CNY50,000 were investigated in 2019, which was an 18.97 percent increase in comparison with 2018. According to Euromonitor International, the volume of illicit trade decreased by 10.1 percent, to 87.5 billion sticks, in 2019. It is worth noting that the Chinese market for illicit cigarettes is significantly smaller than it was in 2014 (Table 2).

Table 2: Illicit Trade Penetration in China

	Units	2014	2015	2016	2017	2018	2019
China	percent	5.3	5.0	4.9	4.6	4.1	3.7

Although the anti-counterfeiting and anti-smuggling campaign has achieved significant results, the situation remains grim. Driven by the exorbitant profits, illicit trading of cigarettes is bound to exist for a long time. Increasingly illicit traders have moved their operations to Southeast Asia, only to smuggle their products back into China for distribution.

The STMA, together with departments such as public security, customs and the coast guard, is determined to crack down on these illegal activities, especially in Guangdong Province and Guangxi Zhuang Autonomous Region, as these two provinces, bordering Southeast Asian countries such as Cambodia, Burma and Vietnam, have been hardest hit by counterfeiting and smuggling operations.

The boom of non-cigalike closed systems driven by online availability comes to a halt

During an internal symposium in August 2018, Jianmin Zhang, director general of the STMA, urged the tobacco industry to strengthen its research into the transformation of traditional cigarettes and develop a new type of tobacco industry. Although still small, the new-type tobacco market is developing at an unprecedent pace, reaching a 101.6 percent growth rate in terms of current sales value in 2019 thanks to the vigorous growth of non-cigalike closed vapor systems.

Starting in 2018 with only a few brands, the market has welcomed an increasing number of new products in 2019. Both local vapor manufacturers and original equipment manufacturers have set foot in the non-cigalike closed systems market. These non-cigalikes have been warmly welcomed by consumers, especially the young adults, thanks to their fashionable designs, convenience and affordable prices.

Before the advent of the internet, the vapor market in China had kept a comparatively low profile. However, in June 2018, a CNY38 million injection of angel financing in the vapor firm Relx led to a boom of vapor startups.

In January 2019, the launch of FLOW with the endorsement of a leading internet enterprise accelerated the growth of vapor industry. This growth continued even though the vapor products were named and shamed by China Central Television for their alleged health risks and lack of industrial regulations. A total of 35 vapor brands in China received financing in the first three quarters of 2019, and the total financing amount exceeded CNY1 billion.

With the help of significant investments, non-cigalike closed systems have become widely known among consumers. However, the supervision of the vapor industry did not keep up with the rapid development of the market and led to some areas of concern, manifested, for example, by the question of whether nonsmoking younger consumers are being attracted to the category, as well as marketing issues such as irregular labelling of e-liquid. These phenomena accelerated the arrival of regulations.

On Nov. 1, 2019, the STMA and the General Administration of Market Supervision and Administration issued Circular on the Further Protection of Minors from Electronic Cigarettes, which prohibited sales to minors, along with internet sales and advertisements of vapor products.

The circular hit the hot vapor market like a bucket of cold water. Before its announcement, the sales of domestic vapor brands were carried out mostly through major online B2C channels such as Tmall and JD.com, which accounted for 80.7 percent of value share in the vapor market in 2019. The internet retailing ban put vapor and combustible tobacco products on the same level. The sales of vapor products have been transferred from internet retailing to other channels such as social media and offline vapor stores.

The circular also severely impacted the sales of vapor products because of decreased accessibility. Contrary to offline buyers, online shoppers face no time and geographic restrictions to purchase vapor products; they can buy as long as they have access to the internet. This is an important benefit particularly for vapers in smaller cities where there are fewer vape stores.

Besides, selling offline requires a large investment in the creation and operation of physical stores. In the short term, the high entry barrier will phase out small and uncompetitive brands, and intensify competition. In the long term, the market will concentrate as leading players with deeper pockets can open stores more rapidly than their smaller counterparts. Physical stores also provide existing and potential consumers a place to experience vapor products, which will probably contribute to the sales increases.

The potential of heated tobacco

Rather than burning tobacco, heated tobacco products create an inhalable vapor. It is claimed that heated tobacco products offer a 90 percent to 95 percent reduction in harmful and potentially harmful substances and toxicity, thereby reducing risk while maintaining satisfaction. Currently, China prohibits the sales of heated tobacco products. However, in its July 2018 reform notice, the STMA urged departments and bureaus to deepen innovation and reform of new-type tobacco products and promote the development of customization, industrialization and branding of new-type tobacco products, as well as the corresponding policies and regulations.

China Tobacco Sichuan Industry Corp. was the first Chinese provincial tobacco manufacturer to launch a heated tobacco product: Kung Fu-Kuan Narrow. The product debuted in South Korea in October 2017. Since then, other tobacco monopoly administrations and private companies have entered the heated tobacco market. Although current regulations reserve heated tobacco products for exports, they might still have domestic potential in the future.

Covid-19 likely to dampen consumption

The Chinese tobacco industry reached CNY1.7 trillion in 2019 with a steady growth momentum over the past three years. However, the industry is currently going through a rough period given its reliance on offline channels. The closure of shops and restaurants in response to the coronavirus has not only reduced shopping but also decreased smoking opportunities, especially in smaller cities that were not enforcing smoking bans. In China, cigarettes have traditionally played an important role in social gatherings, which were largely banned in early 2020.

The slow return to normal, along with the stagnation of logistics, will undoubtedly decrease supply in the first quarter of 2020. In the meantime, the epidemic will also slow the physical store expansion of vapor players, which will further affect sales of vapor products in 2020. Due to the deceasing accessibility of tobacco products, smoking prevalence might decline and lead to a tobacco products consumption decrease in the short term. However, in the longer term, the industry will likely remain resilient in China due to the addictiveness of cigarettes and the strength of consumer behavior.

Mark Miao is associate analyst at Euromonitor International.

April 1, 2020

Smoking rate falling slowly
The incidence of smoking has been declining on the Chinese mainland, but more tobacco-control efforts are needed, according to a story by Wang Xiaodong in the China Daily citing the findings of a survey published on Thursday.
Last year, 26.6 percent of the mainland’s population 15 years of age or older were smokers, according to the survey, which was conducted by the Chinese Center for Disease Control and Prevention (CDCP) between July and December.
A similar survey conducted by the CDCP in 2014 and 2015 showed 27.7 percent of this age group smoked.
The survey reportedly found that there was increasing public support for tobacco control efforts. More than 90 percent of those surveyed said they supported a total ban on ‘tobacco in the workplace’, and more than 95 percent said they supported banning smoking in hospitals, in middle and primary schools, and on public transport. Nearly 80 percent said they hoped to see a ‘ban on tobacco’ in restaurants.
But the survey found too that adult smokers ‘generally lack the willingness to quit’, with 16 percent planning to quit within the year.
Zhi Xiuyi, vice-president of the Chinese Association on Tobacco Control, said China faced severe challenges in protecting people from the effects of tobacco use, despite the progress made.
“To achieve the government target of bringing down the percentage of adult smokers to 20 percent by 2030, we have a lot of work to do,” he said.
Wang reported that the biggest obstacle to tobacco control in China was the powerful tobacco industry, which was one of the biggest tax contributors to the government.
June 3, 2019
Vaping ban in public places
The Chinese city of Shenzhen is to strengthen its regulations on tobacco smoking in public places, according to a story in The China Daily citing a Nanfang Daily report.
The change in direction has been made necessary because the city authorities have reportedly run into problems in implementing their original regulations.
The problems apparently arose in the form of difficulties with law enforcement and evidence collection, complex punishment procedures and excessive fines.
Since the implementation of tobacco smoking regulations in Shenzhen on March 1, 2014, the authorities have raked in 3.745 million yuan in fines, comprising 3.325 million yuan in fines on smokers and 420,000 yuan in fines on venues.
Deputies of the Shenzhen People’s Congress on January 18 proposed that Shenzhen should revise its policy on tobacco smoking in public places to make the regulations more practical.
The revised draft of the Regulation on Smoking Control expands the definition of smoking to include the use of electronic cigarettes and other lit tobacco products.
It expands the scope of smoke-free areas, which now include outdoor queuing areas for public transport, such as buses, coaches, taxis, subways, ships and civil aircraft. Smoking is prohibited also within five meters of subway entrances and exits.
And it stipulates that no tobacco products are to be sold within 100 meters of kindergartens, primary and secondary schools, and children’s activity centers.
February 15, 2019
Wings on, wings off
All China’s domestic airlines have been ordered to prohibit immediately smoking and vaping in cockpits, and to punish severely crew members who violate the ban, according to a China Daily story citing a notice issued by the Civil Aviation Administration of China (CAAC).
The CAAC has ordered airlines to suspend crew members who smoke or vape in cockpits for 12 months for a first offense and for 36 months for repeat offenses. Other crew members who fail to intervene when a member of a cockpit crew is smoking [or, presumably, vaping] were said to be liable to a six-months’ suspension.
The CAA said that if smoking [and vaping] on a plane resulted in serious consequences, the penalty would be more severe and would be recorded in crew members’ files.
Smoking was banned in the passenger cabin and toilets of all aircraft in October 2017, but individual airlines had the option to permit smoking in the cockpit for two years. The recent cockpit ban accelerates the original time frame.
Originally, the rules would not have taken effect until the end of this year, said Zhang Qihuai, a Beijing lawyer specializing in civil aviation. But only Chongqing Airlines and China West Air had implemented the cockpit ban.
In July, news reports said that an Air China co-pilot who was vaping during a flight from Hong Kong to Dalian, Liaoning province, wanted to turn off the air circulation fan. But he switched off the aircraft’s air conditioning by accident, which diffused smoke [presumably vapor] throughout the cabin and led to the deployment of oxygen masks and an emergency descent.
The aircraft climbed to its cruising altitude and the flight continued once the problem was identified.
There were 153 passengers and nine crew onboard. No injuries were reported.
Zhang said he believed this incident triggered the early enforcement of the regulation.
“If heavy smokers among the passengers can forgo their habit during flights, there is no reason to make the crew an exception, especially since they are responsible for the safety of all on board,” Zhang said.
January 28, 2019
India sees export opening
Yesterday saw the signing of a protocol under which Indian leaf tobacco will be exported to China, according to a Press Trust of India story published in the Business Standard and The Week.
A statement by the Indian Embassy in Beijing said the protocol was signed by India’s Commerce Secretary Anup Wadhawan and Zhang Jiwen, Vice Minister of General Administration of China Customs, which is responsible for examining market access and quarantine issues in respect of India’s agriculture and allied products.
The revival of the phytosanitary protocol with China would pave the way for the revival of Indian tobacco exports to China and prove economically beneficial to Indian farmers, the statement said.
January 22, 2019

Tag: China

Shenzhen’s vapor hardware manufacturers have resumed operations, but it’s hardly business as usual.

Tobacco Reporter: Please illustrate with some statistics the importance of Shenzhen to the global vapor business.

How severe was the Shenzhen lockdown? Were businesses required to cease operations altogether, or could they continue manufacturing at a low level?

By how much did the output of Shenzhen’s ENDS manufacturers decline following the lockdown?

Do you expect customers to reduce their reliance on Shenzhen by sourcing more vapor products from other sources in the wake of the crisis? Are there alternatives to Shenzhen?

How do you expect the crisis to impact the Shenzhen manufacturers in the future?