China’s Vape Industry: Consumption Tax to be Imposed from November 1

Posted by Written by Arendse Huld Reading Time: 18 minutes

China’s vape industry has been hit with another round of legislation. The new measures build upon a decision to move the industry under the purview of the State Tobacco Monopoly Administration and regulate e-cigarettes/vape products as tobacco products, which will put significant restraints on the industry catering to the domestic market. We discuss the finalized regulatory measures below, implemented from May 1, 2022. Technical standards approved by China’s market took effect on October 1, 2022. In addition, e-cigarettes will be subject to a consumption tax from November 1, 2022.

(In this article, the terms ‘vapes’ and ‘e-cigarettes’ are used interchangeably and refer to the same product.)

China Vape Industry Regulations


Updates

  • October 25, 2022 E-cigarettes will be subject to a consumption tax from November 1, 2022. China’s Ministry of Finance, General Administration of Customs, and State Tax Administration released the Announcement on the Collection of Consumption Tax on Electronic Cigarettes, which states that e-cigarette products will be subject to consumption tax and be added as a sub-item under the tobacco tax item list. From November 1, 2022, e-cigarettes will be subject to an ad valorem tax. The rate for the production and import of e-cigarettes will be 36 percent while the rate for wholesale will be 11 percent. Meanwhile, the announcement clarified that exports of e-cigarettes are eligible for the tax refund and exemption policy, signaling that China will still encourage the export of e-cigarettes. 
  • September 28 to 30, 2022 – China’s State Tobacco Monopoly Administration (STMA), the country’s top regulator of tobacco products, issued a notice on matters related to strengthening the regulation of e-cigarettes. The notice stressed the need for e-cigarette manufacturers, wholesalers, retailers, and other entities involved in the production or distribution of e-cigarettes to comply with new regulations released in late 2021 and early 2022. It included details of a dispute mechanism for companies that disagree with decisions on licensing made by the STMA during the transition period for companies to shift their business models to comply with regulations. In addition, on September 30, 2022, the STMA released two draft notices on limits for the number of e-cigarette products that can be carried or mailed across borders. The draft notices are open to public comment until October 30, 2022.
  • April 25, 2022 – the STMA released a new set of trial policy measures for regulating the e-cigarette industry, titled Several Policies and Measures on Promoting the Legalization and Standardization of the Electronic Cigarette Industry (Trial) (the “trial policy measures”). The trial policy measures build upon existing e-cigarette rules and regulations to standardize and regulate the development of the industry in order “to put the development of the e-cigarette industry on the track toward legalization and standardization”. The new trial policy measures provide clarity on how the STMA intends to supervise and regulate the industry following the decision to regulate e-cigarettes as tobacco products and place them under the purview of the tobacco regulator. Jump to our updates on the latest trial policy measures here [anchor link].
  • April 8, 2022 – the State Administration for Market Regulation (SAMR) approved the “Electronic Cigarette” Mandatory National Standards, numbered GB 41700-2022, which among other requirements ban the sale of vapes of any flavor other than tobacco. The standards take effect from October 1, 2022, meaning that some flavored vape products can be sold in China up until this date, which is beyond the initial date of May 1 stipulated in the latest administrative measures regulating the market. The document also sets a wide range of other technical standards, including permitted ingredients and additives, nicotine levels, testing and safety standards, and accreditation.
  • March 11, 2022 – the STMA, the country’s top regulator of tobacco products, released the finalized version of the Administrative Measures for E-Cigarettes, which lays out new regulations for the production, marketing, and sales of e-cigarettes in China. The latest version of the measures is an amendment to a previous draft that was released for public opinion in December 2021. Several provisions have been amended and new regulations added in the latest version. Among other new regulations, the measures now prohibit the sale of flavored e-cigarettes, a significant blow to the industry. The measures build upon a decision in 2021 to move the industry under the purview of the STMA and regulate e-cigarettes as a tobacco product. The measures will go into effect on May 1, 2022.

Regulating China’s vape industry 

On November 26, 2021, China’s State Council announced it had amended the Regulations for the Implementation of the Tobacco Monopoly Law of China to include e-cigarettes and related products, stipulating that they are subject to the same regulations as tobacco products. This means vapes will now be subject to the same rules for licensing, production, sales, import/export, and taxation, among other rules, as traditional tobacco products.

Then on December 2, 2021, China’s State Tobacco Monopoly Administration (STMA) released a draft of the Administrative Measures for E-Cigarettes (the ‘administrative measures’)’), a new set of administrative measures for governing the emerging China vape industry. These measures were later amended, and a final version was released on March 11, 2022. The administrative measures came into effect on May 1, 2022. However, as the “Electronic Cigarette” Mandatory National Standards [Standards number GB 41700-2022] (the ‘national e-cigarette standards”) – that were released shortly after – only came into effect on October 1, 2022, a transition period for companies to shift their business models to comply with the regulations was implemented from May 1 to September 30, 2022.

The administrative measures were based on the following Chinese laws governing the tobacco industries and the protection of minors: 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 for the Implementation of the Tobacco Monopoly Law of the People’s Republic of China. The administrative measures stipulate regulations for the production, sale, marketing, and import and export of e-cigarette products and nicotine for e-cigarettes. Perhaps one of the most significant rulings is the requirement for companies to process all transactions through an e-cigarette transaction platform’, overseen by the STMA.

Overview of China’s vape industry

The China vape or e-cigarette industry has exploded in growth over the past couple of years, with early movers benefiting from unfettered access to the largest population of smokers in the world. The industry also has massive growth potential.

According to a report from Chinese data analysis firm iiMedia Research, the penetration rate of e-cigarettes reached just 1.5 percent in 2021. This report notes that this is far behind countries such as the U.S., the U.K., and Japan, all of which have penetration rates above 30 percent.

There is therefore significant room for expansion if companies are able to convince more of China’s 300 million or more smokers to wean off traditional tobacco.

Regulations will now be the biggest hindrance to the industry’s potential. Until recently, e-cigarettes were not regulated as a tobacco product. Companies instead operated in a legal grey area that ultimately enabled it to grow into an RMB 8.3 billion (US$1.3 billion) industry.

This decision, although perhaps not welcomed by the industry, will not come as a surprise; the government began deliberating it back in March 2021, and the pressure on lawmakers to sign off on the decision will only have become more acute as other laws aimed at enhancing the welfare of minors were released last summer.

The issue of the protection of minors was likely also behind the decision at the end of 2019 to ban the online sale and advertising of e-cigarettes, as concerns rose over how accessible the youthfully marketed product was to minors.

A look at China’s e-cigarette regulations 

The administrative measures are applicable to companies that engage in the production and operation of electronic cigarettes within China and cover all vape products, including vape cartridges, vape sets, and products sold as a combination of cartridges and sets.

Heated tobacco products will be regulated as traditional cigarettes and not as e-cigarettes.

Regulations for producers and manufacturers 

Under the administrative measures, local tobacco monopoly administrative departments are responsible for the monitoring and management of e-cigarettes in their jurisdiction.

The local tobacco administrative departments are required to organize professional institutions to conduct technical review of e-cigarette products based on application materials, such as inspection and testing reports.

They must also conduct regular and ad-hoc inspections of companies and individuals with licenses to sell vape products.

License and registration

Companies must receive approval and obtain a license from the tobacco monopoly administrative department of the State Council before they can establish business to manufacture e-cigarettes. The license must then be ratified and registered by the market supervision and management department.

  • To be eligible for a production license, companies must meet the below criteria:
  • Have an appropriate amount of funding for the production of e-cigarettes;
  • Have the necessary technology, and equipment required for the production of e-cigarettes;
  • Comply with the national e-cigarette industry policy requirements; and
  • Other criteria stipulated by the STMA.

Manufacturers must reapply for a license if their scope of business changes and obtain approval from the STMA if they intend to expand production capacity.

The tobacco products used by manufacturers to produce e-cigarette products and nicotine must be purchased from a company with the right to operate and may not be purchased from an illegal seller.

E-cigarette products must use a registered trademark and the packaging must comply with the regulations on labels and warnings.

Regulations for China vape retailers and wholesalers

Companies engaged in the wholesale and retail of vape products are subject to the same rules and criteria for registration as producers and manufacturers. That is, they must obtain and receive approval for a license to engage in the wholesale or retail of e-cigarette products from the STMA or get approval for a change in the business scope of the license if they are pivoting into wholesale or retail.

The criteria to receive a license are the same as those required to receive a license for production and manufacturing listed above, adjusted to apply to wholesale and retail.

Prohibitions on the sale and marketing of e-cigarettes

Qualified and licensed retailers are also required to purchase vape products from a local licensed wholesaler, and wholesalers are not permitted to sell e-cigarette products to unlicensed retailers.

The administrative measures prohibit retailers and wholesalers from holding events, such as exhibitions, forums, and expos, to promote e-cigarettes.

In addition, e-cigarette retailers may not be located in the vicinity of any primary school, secondary school, vocational school, or kindergarten. They are also not permitted to sell e-cigarette products to minors and must place a sign banning minors from purchasing e-cigarettes in a prominent place in the shop.

E-cigarette products can now also no longer be sold through vending machines or any other self-service mechanism. The transport of e-cigarette products will be monitored by the local tobacco administration departments. The department will also impose limits on the number of e-cigarette products that can be shipped and carried across borders, which will make it harder for small vendors to skirt regulations by having individuals personally transport or send products through the mail.

One of the major new additions to the administrative measures is the ban on the sale of flavored e-cigarettes. The administrative measures now prohibit the sale of e-cigarettes in any flavor other than tobacco and the sale of e-cigarettes that can have flavors added to them.

Prohibitions for advertising e-cigarette products

E-cigarette products cannot be advertised in media, public areas, public transport, or outdoor spaces. It is illegal to send any type of vape product advertisement to minors.

It is also prohibited to use advertisements and public service advertisements of other goods or services to promote the name, trademark, packaging, design, or other similar content related to electronic cigarettes. All public communications of e-cigarette manufacturers or sellers, such as store relocation notices, name changes, and recruitment ads must not contain the names, trademarks, packaging, design or similar content electronic related to the e-cigarettes.

It is also prohibited to hold exhibitions, forums, expositions, or other public promotional activities to promote any type of e-cigarette product.

Regulations for import and export

If a wholesaler wants to pivot to exports, it must update its license scope and get approval from the STMA.

All imported e-cigarette products can only be sold through the e-cigarette transaction platform. The imported products sold in China must also undergo a technical review and must use an approved trademark that has been registered in China.

The latest version of the administrative measures has slightly relaxed requirements for the production of vapes made for export only, having removed the requirement for such companies to register products and receive a production license from the STMA.

The new administrative measures, however, do stipulate that products made for export must meet the standards and regulations of the import company. If the import company does not have any relevant standards or regulations, then the products will be subject to China’s standards and regulations instead.

Companies engaged in e-cigarette-related production that have obtained a tobacco monopoly production license and are engaged in export business must carry out export filing on the e-cigarette transaction management platform.

Consumption tax 

From November 1, 2022, e-cigarettes in China will be subject to consumption tax, and e-cigarettes will be added as a sub-item under tobacco on the list of tax items. 

For the purposes of tax collection, the definition of e-cigarettes products is: “Electronic transmission systems used to generate aerosols for people to smoke, including pods, vaping equipment, and e-cigarette products sold in combination with pods and vaping equipment. Cartridges refer to e-cigarette components that contain atomized substances. Vaping equipment refers to electronic devices that atomize substances into inhalable aerosols.”

E-cigarette Products Import-Export Tariff Number and Product Name

Tariff number*  Product name 
24041200 

 

Non-flammable products for inhalation that don’t contain tobacco or reconstituted tobacco, but contains nicotine 
ex85434000 

 

Equipment and devices for atomizing aerosols into inhalable aerosols that can be placed in the products listed under tariff number 24041200, whether or not it comes with a pod 
* Tariff number under the “2022 Import-Export Tariff Number of the People’s Republic of China” 

Companies and individuals who produce, import, or wholesale e-cigarettes are considered consumption taxpayers. E-cigarettes are subject to ad valorem tax at a rate of 36 percent for production and import and 11 percent for wholesale. 

E-cigarette production taxpayers are companies that have obtained a license to produce e-cigarettes from the tobacco monopoly authorities or companies that have obtained or licensed the use of a registered trademark of another company’s e-cigarette products. If the e-cigarettes are produced through an OEM, the company holding the trademark is liable for the consumption tax.  

Meanwhile, e-cigarette wholesale taxpayers are companies that have obtained the license to wholesale e-cigarette products from the tobacco monopoly authorities and operate an e-cigarette wholesale business. E-cigarette import taxpayers are companies or individuals who import e-cigarettes. 

The consumption tax that companies or individuals are liable for is calculated slightly different depending on how the products are sold or produced: 

  • Producers and wholesalers of e-cigarettes pay tax based on the sales of the production and wholesale of e-cigarettes.  
  • Companies that sell e-cigarettes through an agency in the production process must pay tax based on the sales of the distributors or agents to the e-cigarette wholesaler. 
  • Importers of e-cigarettes must pay tax based on the component taxable price. 
  • Companies engaged in the processing of e-cigarettes in the production cycle must calculate the sales of trademarked e-cigarettes and the sales of OEM e-cigarettes separately; if they are not accounted for separately, they must pay consumption tax together. 

Taxpayers exporting e-cigarettes are eligible for the export tax rebate or exemption policy. 

Limits for carrying and mailing e-cigarette products across borders

On September 30, 2022, the STMA released two draft notices on the limits for the number of e-cigarette products that individuals are permitted to mail or carry across borders. The limits are based upon the provisions of the Tobacco Monopoly Law and the Measures for the Administration of Electronic Cigarettes, as well as auxiliary laws and regulations.

The limits for the number of e-cigarette products that can be carried across borders per person per trip are:

  • Maximum 150 e-cigarette cartridges (liquid atomizers)
  • Maximum 10 e-cigarette devices
  • Maximum 150 products sold in combination with cartridges and smoking accessories (such as disposable e-cigarettes)
  • Maximum 300ml of atomizers, such as liquid smoke and nicotine used in electronic cigarettes

Meanwhile, for sending e-cigarette products through mail, the limits are as follows:

  • Maximum of six e-cigarette cartridges (liquid atomizers), with a maximum of 12ml of total e-liquid capacity
  • Maximum of two 2 e-cigarette devices
  • Maximum of six e-cigarette products (such as disposable electronic cigarettes, etc.) sold in combination with cartridges and e-cigarette devices, with a maximum of 12ml of total e-liquid capacity
  • Maximum 12ml of atomizers, such as liquid smoke and nicotine used in electronic cigarettes

Individuals are only permitted to send one parcel of the above e-cigarette products per day and are not permitted to send multiple parcels.

If a person needs to send e-cigarette products in excess of the above limits for special circumstances, such as sending product off for technical review, quality supervision and inspection, and identification testing, then a certificate issued by the local tobacco monopoly department will be required.

E-cigarette trading companies that have obtained a tobacco monopoly license to transport and send e-cigarette products with other trading companies must do so in accordance with the relevant rules of the tobacco monopoly departments.

These requirements are subject to public comment until October 30, 2022, and therefore the STMA has not yet announced when they will come into effect.

China’s e-cigarette transaction management platform

All licensed manufacturers, producers, wholesalers, retailers, and other related companies will be required to carry out all e-cigarette product transactions through the ‘unified national e-cigarette transaction management platform’ (‘e-cigarette transaction platform’).

Imported vape products can only be sold to domestic wholesalers or producers through this platform.

Overseas suppliers of e-cigarette products are also only permitted to sell products to domestic manufacturers or wholesalers through this transaction management platform.

Products that have not passed a technical review cannot be sold on the platform and the information on the e-cigarette products sold on the platform must be consistent with the information submitted for the technical review.

No seller or individual is permitted to sell e-cigarette products through a channel outside of this management platform.

Dispute mechanism for licensing decisions

The STMA has opened a channel for companies to dispute decisions that were made on the issuance of licenses during the transition period (from May 1 to September 30, 2022).

The companies that are permitted to raise an objection are those that existed before November 10, 2021 and expressed a willingness to apply for the new required licenses during the transition period, but which have not yet been certified as of the end of the transition period.

Objections can be submitted through the provincial tobacco monopoly bureau in the place where the company is located from October 8 to 31, 2022.

The objection must be submitted in writing and must contain the following documents and information:

  1. The company name, legal domicile, the name of the legal representative (person in charge), the name of the company’s contact, telephone, email address, and other contact information.
  2. Details of the specific objections.
  3. The factual basis of the objection, including relevant supporting materials.
  4. The date that the objection was raised.

The above-mentioned written materials should be signed by the legal representative of the enterprise, and each page stamped with the company seal. The STMA and the provincial tobacco authorities will be responsible for handling and responding to the objection, though no details were provided on the timeline for a response.

Oversight and role of the corporate social credit system

Finally, the administrative measures give the STMA the power to take action against companies that violate any of the administrative measures or other tobacco regulations. Measures include holding supervisory talks, suspending the company’s platform trading qualifications, ordering the suspension of production and business operations, carrying out rectification, and even canceling the company’s qualifications for the production and operation of e-cigarette products.

The STMA will also establish a corporate social credit system. E-cigarette companies that have breached regulations will be listed on the system and be subject to closer monitoring and will also have their information listed on the National Credit Information Sharing Platform.

New pilot measures for regulating e-cigarette market development

On April 25, 2022, the STMA released a new set of trial policy measures for regulating the e-cigarette industry, titled Several Policies and Measures on Promoting the Legalization and Standardization of the Electronic Cigarette Industry (Trial) (the “trial policy measures”). These new trial measures clarify how the STMA will regulate the e-cigarette market to ensure a balance in supply and demand, prevent an oversupply of e-cigarette products, and curb “irrational” investment.

These policies are wide-ranging and include measures, such as controlling where and how the market develops, setting sales and production quotas, and regulating e-cigarette companies’ ability to raise capital.

Below we briefly outline some of the measures that will have the greatest impact on the industry’s development.

Market structure

The trial policy measures seek to control the structure of the e-cigarette industry by regulating where e-cigarette production capacity is concentrated, as well as dictating how the distribution of e-cigarette retail outlets will be decided.

First, the trial policy measures call for promoting the “appropriate” concentration of e-cigarette production capacity in “areas and companies with comparative advantages”. This means:

  • Building industrial clusters centered on the design, production, and assembly of electronic cigarette products and atomizers in regions that already have a foundation for e-cigarette production.
  • Building a raw material supply base centered on the production of nicotine for e-cigarettes in areas with existing raw material resources and R&D capabilities.
  • Restricting the development of the e-cigarette industry in areas that do not have the industrial foundation, core technology, market conditions, logistics and transportation capabilities, and talent required.

Meanwhile, the e-cigarette wholesale sector will be subject to a “territorial operation model” whereby wholesalers will be “reasonably” distributed across different regions depending on local conditions, such as the area’s economic development, the number of retail outlets in the region, market coverage, and geographical location, among other considerations.

Local tobacco administrations will also be responsible for determining the layout of e-cigarette retail outlets within their jurisdiction, based on factors such as local demand and concentration of consumer groups.

Management of supply and demand

In order to maintain a balance of supply and demand, the STMA will implement annual domestic sales targets for e-cigarettes. These sales targets will be set by the STMA based on a variety of considerations, including tobacco control, market demand, economic development, demographic changes, and market conditions.

In order to maintain a balance in supply and demand within the domestic market, the STMA will set a range of annual targets to control the sales volume, production, and import of e-cigarettes and related products, such as nicotine for e-cigarettes, and atomizers. These include:

  • Annual domestic e-cigarette sales targets, based on a variety of considerations, including tobacco control, market demand, economic development, demographic changes, and market conditions.
  • Annual sales targets for e-cigarette products imported by wholesale enterprises and the import demand of nicotine and aerosols for e-cigarettes of manufacturers.

In addition to annual targets, the trial policy measures state that a trial filing system will be implemented for the import of nicotine and atomizers for e-cigarettes.

In order to supervise the supply and demand of e-cigarettes and prevent excess capacity, the STMA will establish an “early warning mechanism” for e-cigarette production by using information technology to monitor capacity, evaluate actual market demand, and ensure that enterprises control production and sales.

Investment and funding management

In order to curb “irrational” investment in the industry, the trial policy measures state that the STMA will “strictly manage” e-cigarette investment.

Market entities must report to the STMA for a review if they intend to create new production capacity or expand production capacity through fixed asset investment. According to the trial policy measures, this is to prevent the “blind” expansion and duplicate construction by e-cigarette manufacturers.

Foreign investors will also be prohibited from investing in e-cigarette wholesale and retail. Foreign investors that wish to invest in e-cigarette production must undergo a review.

Finally, the STMA will also implement front-loaded review of e-cigarette companies that apply to make initial public offerings (IPO) inside or outside of China. Only after having undergone a review and received approval from the STMA can the e-cigarette companies take the next steps to list on a stock exchange.

Quality and safety

The trial policy measures call for the implementation of mandatory national standards and the introduction of supportive recommended standards. They also call for conducting follow-up research on international standards and promoting the integration of domestic and foreign standards.

Moreover, the trial policy measures clarify that e-cigarette products on sale will be required to comply with other relevant regulations and national standards, such as ingredient disclosure, packaging labels, health warnings, and registered trademarks, and must pass technical reviews.

This technical review of e-cigarette products must be carried out through a self-review and certification procedure. Companies are required to first conduct a safety test and assessment themselves and then apply for technical review to the STMA.

Earlier in April, the State Administration of Market Regulation (SAMR) approved technical standards, numbered GB 41700-2022, which will take effect from October 1, 2022. The standards set a wide range of other technical requirements, including permitted ingredients and additives, nicotine levels, testing and safety standards, and accreditation. They also reiterate the ban on the sale of vapes of any flavor other than tobacco.

The trial policy measures also call for improving public supervision of e-cigarettes by ensuring consumers have unimpeded access to channels through which they can report defective products and establishing and improving recall mechanisms for defective products.

Technological innovation

The trial policy measures promote technological innovation as means of improving product quality and safety. Specifically, they state that more research should be done on “basic theories, applied technologies, and safety risk assessment in terms of raw materials, materials, pathology, and harm reduction”. Other areas encouraged for research include technical research on atomizer technology, nicotine technology, and finished product assembly technology, in order to improve product safety and stability and reduce harm.

In addition to technical product research, the trial policy measures also encourage the digitalization of the industry by developing “industrial cloud and big data platforms” to automate the production and monitoring of cartridges and smoking accessories and deploying internet and information technology in manufacturing business management and marketing.

Finally, the measures also promote the “greening” of the e-cigarette industry by encouraging environmentally friendly practices and R&D and application of green technology. Encouraged measures include reducing energy consumption, water conservancy and pollutant management, and improvement of recycling and reuse systems for discarded e-cigarette cartridges.

How will the regulatory measures impact the vape industry in China?

China’s vape industry has shown remarkable resilience in the face of previous regulatory crackdowns. The ban on online sales of e-cigarettes implemented in 2019 was a major blow to the industry as it was suddenly cut off from an important revenue stream. However, some of the largest industry players were able to weather the storm by increasing their footprint of brick-and-mortar shops – often placed in prominent locations in busy shopping areas – which enabled it to sustain a high level of growth – at least in the short-term.

The new administrative measures mark a considerably more hardline approach toward the industry. Some of the new restrictions and prohibitions could make the road ahead much more uncertain and even make the domestic market significantly less profitable.

The most glaring issue for the industry is the prohibition of the sale of flavored vapes, as this is one of the major appeals over traditional tobacco products. Shares of the e-cigarette RLX Technology, the market leader in China, fell 36.8 percent following the release of the new administrative measures.

Although there is no concrete market data on the topic, anecdotal evidence suggests very few users choose the tobacco flavor. Much of the marketing around the product also focuses on the different flavor options. In addition to the prohibitions, fears that the STMA would subject e-cigarettes to the same pricing and quota requirements as traditional tobacco products have now in part been confirmed by the new trial policy measures. The clarification on the control of domestic sales and production of e-cigarettes in China means that e-cigarette companies will no longer be able to set their own sales and production targets, which could severely harm the competitiveness of the industry.

The requirements to prove a company has the right amount of capital and facilities may raise the barrier of entry for newer and smaller companies that haven’t yet accumulated the requisite funding. This in turn could benefit the established players who already have the means and capital to meet the new requirements and can therefore more easily pass government assessments.

The requirements for license and registration for manufacturers will similarly hurt small companies while helping to give companies with better funding and facilities a competitive edge. However, it also places higher expectations on upstream producers and serves to properly standardize the industry. This will ultimately be good for consumers who can get more reliable, higher-quality, and safer products.

Finally, restrictions on investment and fundraising in the industry may significantly hinder e-cigarette companies’ ability to grow or expand – even if they are permitted to do so under the review requirements laid out in the trial policy measures.

Is there a space in which e-cigarettes can exist?

One possible silver lining to the crackdown on the industry may be that the administrative measures only explicitly prohibit the sale of flavored vapes in China, and do not appear to prohibit the production or export of flavored vapes. In addition, the trial policy measures have not imposed any restrictions on the production of e-cigarettes for export or sales targets for e-cigarette exports. Instead, they simply call for “optimizing the workflow of e-cigarette product export and e-cigarette product OEM processing and improving the service level for e-cigarette manufacturers engaged in export business”.

This means that Chinese e-cigarette companies may be able to continue to grow in overseas markets where there are more lax regulatory environments, such as in Europe and the US.

Moreover, the sanctioning of technological research in the trial policy measures may also be an encouraging sign, as it signals the government may indeed view e-cigarettes as a legitimate tool for harm reduction and smoking cessation, rather than as an illicit substance, as other countries in the region do.

It’s also worth noting that the regulations do help to legitimize an industry whose legal status was previously dubious. Some investors have been concerned that China would impose an outright ban on e-cigarettes, as Hong Kong did in October of this year. Many other Asian countries, such as Singapore, Thailand, and India, have taken similarly hardline approaches. This is now appearing increasingly unlikely. By incorporating vaping into the legislative framework of the tobacco industry, China is giving the industry a legal space in which to exist. Whether merely existing will be enough for the industry to survive, or whether the regulatory crackdown will completely disincentivize any further growth or investment, remains to be seen.

This article was originally published on December 13, 2021. It was last updated on October 27, 2022.


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