Market for e-cigarettes grows as tobacco regulations tighten
China accounts for 45 percent of all cigarettes consumed globally. The statistic appears to be one that officials are interested in curbing: the government raised taxes on cigarettes from five to 11 percent in 2015, further banned foreign investment in the tobacco industry in 2016, and following a number of citywide bans, a countrywide ban on smoking indoors will take effect later this year.
Many industry observers expected these reforms to encourage the use tobacco cessation products, such as e-cigarettes (commonly referred to as vaporizers or “vapes”). Indeed, a pharmacist in China invented e-cigarettes in 2003, while an estimated 90 percent of the world’s e-cigarettes are made in the southern city of Shenzhen. The vast majority of these e-cigarettes are exported abroad, but the domestic market for e-cigarettes is now growing.
Industry observers quoted in the media note that distributors in northern regions of China have developed the most well-established e-cigarette markets, but that markets have grown in tier one cities across the country as more accessible brick and mortar shops have setup. These developments have led to a major growth in e-cigarette sales in the country since late 2016.
Foreign companies feel welcome in Shenyang
The European Union Chamber of Commerce in China (“European Chamber”) made headlines last week after its most recent survey found that its members suffered from “promise fatigue”. According to the survey, many of the group’s members felt that Chinese officials over-promised and under-delivered with respect to market-oriented reforms designed to increase foreign investment.
However, the survey did contain some bright-spots for foreign investors eyeing the Chinese market. Representatives of foreign firms that responded to the survey said they felt more welcome in the northern city of Shenyang – the capital of Liaoning province – than many other areas of the country.
The chairman of the Shenyang chapter of the European Chamber, Harald Kumpfert, explained to Agence France-Presse, “the local government offers many benefits, such as easing company registration, providing discounts for factory and office space, and giving family members three-year visas”. These incentives undoubtedly help foreign firms in China’s competitive market.
The survey’s findings will be welcomed by the many observers that have been debating how to revitalize China’s struggling Northeast. A decline in investment and economic slowdown – combined with an aging population that sees most of its young professionals migrate – has inspired a renewed focus on incentive schemes designed to attract and retain foreign investors.
Chongqing investments pave way for inland consumer market
The western city of Chongqing has recently attracted at least US$10bn in investment. The city’s economy has grown more than 10 percent annually in recent years – 10.9 percent in 2014, 11 percent in 2015, and 10.7 percent in 2017. Officials project this growth trajectory to continue, particularly after Chen Min’er, who has been tipped as a potential successor to President Xi Jinping, became the city’s Communist Party secretary earlier this year.
The US$10bn in investment for Chongqing has come from a wide-range of companies, with manufacturers grabbing the headlines. Investments from Germany-based chemical maker BASF, South Korea-based chipmaker SK Hynix, Switzerland-based ABB, and US-based Ford motor company have all announced plans for Chongqing, while South Korea-based Hyundai Motor and Taiwan-based retailer Shin Kong Mitsukoshi are reported to be considering Chongqing-focused investments.
Each of these companies sent representatives to the city’s International Economic Advisory Council last weekend. Public officials invited the representatives to discuss how the public sector could develop the city’s within the Yangtze River Delta economic region and the larger One Belt, One Road initiative. Both initiatives are long-term government goals, which are expected to transform the economy of Chongqing and other inland cities along key international trade routes.
Many manufacturers move inland to cities like Chongqing to obtain lower costs, and take advantage of government incentives. Rising minimum wages and real estate costs has caused increased operating expenses for many manufacturers in developed regions, while these regions have also rolled back incentive schemes. As more large employers shift inland for cost savings, consumer markets in these regions should develop significantly – a rise in demand that F&B companies have already raced to meet.
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China’s foreign investment landscape has experienced pivotal changes this year. In this issue of China Briefing magazine, we examine how foreign investors can capitalize on China’s latest FDI reforms. First, we outline new industry liberalizations in both China’s FTZs and the country at large. We then consider when an FTZ makes sense as an investment location, and what businesses should consider when entering one. Finally, we give an overview of China’s latest pro-business reforms that streamline a wide range of administrative and regulatory measures.