At the end of March, China said that it would soon regulate vaping products like cigarettes. That means nicotine vapes would fall under the control of the country’s tobacco monopoly—a development with huge implications in China and potentially the rest of the world. The nation produces roughly 90 percent of the planet’s e-cigarettes.
In China, the government and Big Tobacco are one and the same. The State Tobacco Monopoly Administration and China National Tobacco Corporation—run by the Ministry of Industry and Information Technology and colloquially known as “China Tobacco”—is both the agency in charge of tobacco regulation and the manufacturer of tobacco products. Aside from a small number of “premium” foreign brands, China Tobacco holds virtually the entire market—for tobacco, but not, as yet, for vapes.
“This happens in low-to-middle income countries in general,” Samrat Chowdhery, the president of INNCO, a global nonprofit that supports the rights and well-being of adults who use safer nicotine, told Filter. “The issue is seen from the moral perspective but tempered with the trade value of tobacco. Being cash-strapped countries, that revenue is important. You can use that money to build schools for kids, the logic goes. What’s wrong with that?”
China remains the largest producer and consumer of tobacco on the planet, according to the World Health Organization (WHO). There are more than 300 million smokers in the country, or 27 percent of adults. About a third of the world’s smokers reside there.
When China Tobacco issued a proposal … “to strengthen the supervision of new tobacco products such as e-cigarettes,” the world took notice.
This illustrates the sheer scale of China Tobacco, even if the monopoly does not typically release financial information. A 2019 article in the South Morning China Post cited data from 2012 to show that China Tobacco could usually make even more money than Walmart every year, clocking in billions and billions of dollars in profit.
So when China Tobacco recently issued a single-line proposal—roughly titled the “Decision on Amending the Implementation Regulations of the Tobacco Monopoly Law of the People’s Republic of China”—“in order to strengthen the supervision of new tobacco products such as e-cigarettes,” the world took notice. The agency invited public comments up until April 22.
The news of imminent regulations immediately rocked the country’s e-cigarette industry, and investors scurried for the exits. Shares of some of the largest vaping companies plummeted. RLX Technology, which trades on the New York Stock Exchange, and SMOORE, which trades in Hong Kong, both precipitously dropped—by 48 percent and 27 percent, respectively. (Each has somewhat recovered in the past two months.)
Nonetheless, many industry insiders and observers remain confused about the implications of the changes, if and when they happen.
“Very few details have emerged, and that announcement in March left a lot of room for people to guess,” Yuchen Xue, a data analyst at the Foundation for a Smoke-Free World, told Filter. “These regulations aren’t coming out of nowhere. There’s been a consensus in the industry that e-cigarettes would be under the supervision of the tobacco monopoly. It was only a matter of when.”
There have been past hints. In the summer of 2019, the Chinese government released a thorough draft regulation of e-cigarette standards, which included detailed information about battery compliance, e-liquid purity, testing methods, and a nicotine cap of 20 milligrams per milliliter, as it is in the European Union under the Tobacco Products Directive. Later that year, as misinformation and health concerns around teen vaping swirled in the United States, China banned online sales of vaping products.
“My sense is that the authority will want to put e-cigarettes under the tobacco monopoly to better regulate the industry and to generate additional tax revenues,” said David Ettinger, a partner and chief representative in Shanghai at the law firm Keller and Heckman, where he counsels multinational companies on tobacco-related products. But he told Filter that, given recent priorities from the coronavirus pandemic, “it may take more time before we see anything finalized.”
“I could see something happening by the end of this year or early next, but no one can really predict for sure,” he continued. “It is certainly on China’s to-do list.”
The announcement has prompted intense speculation, dividing onlookers and participants into two camps.
Much of China’s vast e-cigarette manufacturing industry is based in Shenzhen, a city just north of Hong Kong that has been described as the “vaping capital of the world.” The industry employs many millions of people. But a recent Global State of Tobacco Harm Reduction report estimates that there are only 7.7 million vapers in China itself, or 0.6 percent of the population—a significantly lower number than that of smokers, but a substantial proportion of the 19.2 million nicotine vapers across Asia.
That number—like the vaping industry as a whole—is expected to grow. ECigIntelligence, which offers regulatory advice to consumers, businesses and lawmakers, estimates that the Chinese domestic market is already worth $1.3 billion. It has also noted that 2020 saw China export almost $8 billion worth of e-cigarettes.
The vagueness of China Tobacco’s announcement has prompted intense speculation, dividing onlookers and participants into two camps. One side believes that this is proof the government is taking these products seriously and will regulate them appropriately, perhaps through a new kind of licensing or tax system. That would create a harder barrier to enter the industry and could eventually bolster the market shares of the major companies that plummeted in March. But, they think, making vaping “official” in this way could rapidly increase access for hundreds of millions of Chinese smokers who have yet to switch.
“We believe that regulations are good for the healthy and standardized development of the industry in the long run,” Sofia Luo, the marketing director of SMOORE, told Filter. “At SMOORE, we focus on the atomization technology platform—the basic science research not just applied in vaping, but also in healthcare and other areas that make consumers’ life better.”
The other side, meanwhile, thinks that the Chinese tobacco monopoly’s oversight on these companies could become restrictive, even if the scale of the industry would likely make it difficult to implement. Some consumer advocates and smaller vape manufacturers who might be locked out believe that vaping in China—with all of its harm reduction implications—can grow faster organically and without that level of government interference.
So while China Tobacco’s potential next steps are hotly debated, their importance is not. The mystery has left many teetering back and forth on the best course of action.
“I started in the second camp,” Chowdhery said. “But I’ve been slowly persuaded into the first one—into the idea that this could be a good thing.”
The Foundation for a Smoke-Free World has provided grants to The Influence Foundation, which operates Filter, and to INNCO. Knowledge-Action-Change, another FSFW grant receipient which produces the Global State of Tobacco Harm Reduction reports, has provided scholarships to The Influence Foundation. Filter’s Editorial Independence Policy applies.