As major Chinese cities tighten up regulations on cigarette smoking in public places, Chinese electronic cigarette manufacturers – which supply the lion’s share of the product to global markets – now look at their own home market for increased sales.
Virtually all e-cigarettes are made in China, and virtually all are exported until now. Recently the domestic market fore-cigarettes in China has increased.
By Allen Liao
On June 1, 2015, a new smoking ban -- China’s toughest to date – took effect in Beijing. The ban prohibits smoking in all the city’s indoor public places, workplace, and public transportation and in some outdoor public places. Enforcement of the smoking was so comprehensive that authorities carried out inspections involving 31,804 public health inspection officers, and imposed fines of RMB251,800 (US$46,600) by July 31 – only two months after the smoking ban took effect.
Besides Beijing, more than a dozen other major Chinese cities also enacted local smoking ban legislation. However, while efforts to implement the smoking ban are strengthening across continually, the use of electronic cigarettes becomes more prevalent.
On July 23-25, an international e-cigarettes expo was held in Beijing where many Chinese and foreign manufacturers presented their products in an effort to gain customers and develop agents and alliances in the distribution business. Earlier, two separate expos for electronic cigarettes were held in south China’s Shenzhen City, the epicenter of e-cigarette manufacturing and supplies. Apart from these expos, there will be two more for e-cigarettes in October, another in Beijing and one in Guangzhou. The frequency of expos and sudden explosion of awareness reflects the efforts of Chinese e-cigarette manufacturers to shift their focus to also include domestic markets, and away from a 100% export business.
Traditionally, Chinese electronic cigarette manufacturers have always kept a low profile, are always exceedingly cautious, and mainly engage in export trade. Why have they suddenly chosen to shift to domestic markets and conduct high profile advertising? About 3-4 years ago, electronic cigarette products made in China enjoyed good sales and took a lion’s share of international markets with the majority of their income coming from overseas. However, over the last two years, foreign e-cigarette manufacturers came into the market as foreign markets became enacted more requirements for imports of e-cigarettes related to safety, health and taxation. …and the orders received by Chinese manufacturers from abroad have begun to decline. Meanwhile, markets for e-cigarettes in China are growing significantly, and so e-cig manufacturers have turned their attention to lucrative domestic markets one after another.
Rapid Market Growth
There are about 300 million cigarette smokers in China, accounting for one-fourth of the world’s total. China is also the largest electronic cigarette manufacturer and exporter in the world. Entire regions in the south of the country – especially Shenzhen – are veritable hubs of electronic cigarette manufacturers. It is estimated that over 90% of the e-cigarette products on sale globally are made in Shenzhen. Along with continued sophistication and growth of global markets in the last few years, e-cig markets inside China have also begun to embark upon a path of rapid development and growth.
Domestic e-cigarette consumption is largely in domestic e-cigarette markets are mainly located in Beijing, Hebei, Liaoning, Shandong, and other regions in the northern part of China. Since 2014, the number of e-cigarette distributors and physical stores in the northern part of China has also increased rapidly. It is estimated by industrial sources that presently, there are about 500 physical stores selling electronic cigarettes across China.
According to results of an analysis of online sales from June 2014 to May 2015, it is perceivable that the capacity of e-cigarette markets in China is very large, with relatively little competition. By the end of May 2015, there were 6,881 retailers on the Taobao e-commerce website and 211 on T-Mall, and the majority of the products on sale are home-manufactured, brand name products with very little competition from foreign brands. The search index for electronic cigarettes on the websites is on an upward trend, with the daily average of searches registered in May 2015 reaching a high of 86,000.
Despite rapid development domestically, product or brand recognition by consumers is still very low. According to the results of an online survey conducted in December 2014 by TobaccoChina Online with a questionnaire about Chinese consumers’ knowledge of new types of tobacco products, 93.27% of the respondents replied that they had heard of electronic cigarettes, while only 3.99% of the respondents said that they had used or were using electronic cigarettes. Obviously, the rate of use of e-cigarette products among Chinese smokers is still very low, which means that there might be a vast market potential for such products in the country.
As a result of continued evolution, e-products today are no longer what they appeared to be a decade ago when they were invented. Presently, e-cigarettes are more diverse and highly technologically developed, with endless emergence of imitation cigarettes, mechanical cigarettes, vapor cigarettes with adjustable pressure and temperature, etc, which are not only different in appearance, but also generate different flavors and tastes for consumers. As a result, Chinese consumers acquired new knowledge of electronic cigarettes. At the same time, domestic markets are becoming more and more open to the outside world, and market demand is gradually shifting from medium- and low-grade products manufactured locally to higher-grade products from around the world.
Absence of Effective Regulation
So far, China has not issued standards and procedural rules governing electronic cigarette production and safety. It is difficult to define the attributes of such products as they belong to neither tobacco products nor drugs. Therefore, there is actually an absence of effective regulation in China.
In an address delivered at the 16th World Conference on Tobacco or Health held in Abu Dhabi, in March 2015, Mao Qun’an, spokesman for the National Health and Family Planning Commission, said: “Electronic cigarettes are a ‘double-edged sword’, which is conducive to reducing reliance on nicotine during the period of giving up cigarette smoking, but which may also result in abuse of nicotine. To strengthen regulation over production and marketing of electronic cigarettes is an international trend, while there are almost no regulations and controls over electronic cigarettes in China, with an absence of relevant laws and regulations for supervision and control in this field, which deserves vigilance and which calls for imperative action.”
In an interview with news media conducted in July 2015, Dr. Gan Quan, director of China office of the International Union Against Tuberculosis and Lung Disease, said, “As far as the scope of regulation over electronic cigarettes is concerned, e-cigarettes are just in a regulatory blind spot, as they are neither tobacco products nor drugs. This is not only a very serious problem, but is also a cause for disparity of quality and flooding of electronic cigarettes in markets.”
Experts with the medical and health care community suggest that there is an ideal role that e-cigarettes can play: along with gradual strengthening of tobacco control, more and more cigarette smokers may be willing to give up tobacco. Under such circumstances, doctors at smoking cessation clinics can advise on the best way for them to kick the habit. If they are seriously reliant on nicotine, the doctors can then recommend the use of e-cigarettes at a proper dosage to control and reduce intake of nicotine, and thus to attain the goal of eventually giving up smoking.
The World Health Organization (WHO) once proposed that electronic cigarettes be regulated as drugs or tobacco products. So far, Canada, France, Australia, and other countries have already brought electronic cigarettes under regulation as tobacco products. In China, the State Tobacco Monopoly Administration (STMA) – the regulator of the national tobacco industry – has been looking at the status of electronic cigarettes for quite a long time, conducting surveys of markets of new tobacco products including electronic cigarettes, and launching relevant technical research.
Speaking at the 2014 national tobacco work conference held in Beijing, STMA director-general Ling Chengxing said, “In keeping with the trend of development of international tobacco markets, great importance shall be attached to developing new types of tobacco products, which shall be defined as a strategic, overall, and long-term major project concerning sustainable development of the tobacco industry.”
At the 2015 national tobacco science and technology work conference held in Beijing, development of new types of tobacco products was defined as one of the two major strategic tasks of the tobacco industry for tobacco science and technology development in the future.
There have been more and more signs indicating that the State increasingly supports and encourages development of new types of tobacco products while provincial-level China Tobacco regional industrial corporations are all actively sponsoring research and development of electronic cigarettes and new types of tobacco products with heating but without burning. For example, China Tobacco Hubei, China Tobacco Henan, China Tobacco Shandong, and Shanghai Tobacco Group, are all sponsoring research and development of new types of tobacco products with self-owned intellectual property rights, and have all made certain achievements.
Although the existing tobacco monopoly law in China is not yet binding to electronic cigarettes, they are expected to be included into the scope of regulation by the law in future revisions or amendments. Moreover, with enactment of judicial interpretations by China’s Supreme Court, Chinese electronic cigarette manufacturers are expected to usher in a round of standardization-oriented regulation. As far as the present situation is concerned, Chinese electronic cigarette manufacturers now face certain policy risks and operational risks, as a result of uncertainty of regulatory policies. If electronic cigarettes are defined as medical products, it means that the consumer group and market for electronic cigarette manufacturers will become extremely limited. Meanwhile, if electronic cigarettes are defined as tobacco products, they may be subject to limitation by the system of State monopoly, and the many small and medium-sized manufacturers with a weak capacity will likely be phased out.
No matter where their way out lies, Chinese e-cigarette manufacturers will all have to take precautions in the future.