China is the world’s largest producer and exporter of electronic cigarettes – and now its mighty tobacco firms see the growing sales and making brands of their own.
In 2003, a Chinese company invented the battery-powdered cartridge that produces a nicotine-laced inhalable vapour. Since then, the country has turned into the global production center of an industry worth US$2.5 billion last year.
The biggest market is the United States, worth US$1 billion in 2013. The main production centres are in Beijing, Shenzhen and Zhejiang.
The Boge Technology Co. of Shenzhen, for example, was established in 2008 and has monthly output of 300,000 pieces and annual exports of 100 million yuan. The Chinese firms operate as OEMs and account for 80-90 per cent of the US market.
The top-selling brand in the US is Blu, sold by Lorillard Inc., with a market share of about 50 percent. It makes the nicotine liquid in the US and ships it to China, where the battery-powdered devices are assembled. This is the most common form of production.
The three major US tobacco firms are betting heavily on the new product to offset sales of conventional cigarettes; they have bought or developed their own brands.
Some analysts expect sales to overtake those of normal brands within the next decade, partly because of the perception that they are safer to smoke.
Watching this strong growth, Chinese tobacco firms have this year decided to enter the market.
In June, Zhong Yuan of Yunnan and Huabao International signed an agreement to develop e-cigarette products.
Last month, Zhong Yan of Hubei launched its first series of such products in Wuhan. E-commerce site Taobao is offering thousands of e-cigarettes.
In China, there is a regulatory vacuum over the product. No agency of the government has responsibility for e-cigarettes, including those in charge of drugs, chemical goods or product safety.
Manufacturers only need production and business licences; there are no industry standards or regulations.
This uncertainty reflects the global debate over e-cigarettes. Some evidence suggests they are safer than smoking tobacco products and help people to give up the habit; others argue that they cause addiction in those who do not already smoke and may encourage it in those who do.
Many countries are holding this debate and considering the appropriate legislation.
Watching this regulatory vacuum, the State Tobacco Monopoly (STM) in China sees a good market opportunity; it is lobbying the government to classify e-cigarettes not as a drug nor a chemical but a tobacco product and give the monopoly authority over them.
That would enable it to set industry standards and regulations and be the sole beneficiary from sales within China.
All this causes alarm to tobacco control campaigners, such as Wu Yiqun, director of the Xin Tan Health Development and Research Centre.
“When I was traveling in the US, I bought a dozen e-cigarettes. All were made in China. The development of the market here is extremely chaotic, Wu said.
“The debate centers on several points. Do they help or not to stop smoking? Can they satisfy the desire for nicotine among smokers – but are there hidden side-effects?” she said.
“I am fearful of the impact of e-cigarettes on young people.”
There are also safety issues. On July 7, a consumer named Liu Tai, who had spent 300 yuan on a pack from Taobao, was smoking one; it exploded and caused serious burns to his right hand and arm. He needed hospital treatment.
In April and May, some US producers announced that were moving production from China to the US for safety reasons and in anticipation of stricter regulations from the National Food and Drug Administration.
They will use highly automated factories that will keep costs down and enable them to track ingredients and quality more easily.
But the majority of global output will remain in China.
The money at stake in this new product is enormous. By some estimates, US sales of e-cigarettes will exceed those of conventional ones by 2020, in part because the perception that they are safer to smoke.
For Chinese manufacturers, the biggest export market is the US, followed by Russia and Germany. These three account for more than half the global consumption.
The industry in China expects to earn US$6.4 billion by 2020 in OEM manufacturing for foreign companies.
– Contact us at [email protected]