Key Points
● China has moved to tighten controls over e-cigarette production capacity and investment, targeting oversupply and what regulators describe as “involution-style” competition.
● New measures focus on restricting new projects, stabilizing approved capacity and tightening oversight of production scale and capacity adjustments.
● Regulators aim to accelerate the exit of inefficient and non-compliant producers while encouraging consolidation among compliant enterprises.
● The measures could strengthen regulatory discipline across China’s e-cigarette supply chain and carry longer-term implications for global markets, according to analysis by Alan Zhao, co-founder and CEO of 2Firsts.
2Firsts, December 25, 2025, Shenzhen — China’s State Tobacco Monopoly Administration (STMA) on December 25 unveiled a new policy framework aimed at tightening controls over e-cigarette production capacity and investment, marking a further step in efforts to rein in disorderly competition and address oversupply risks in the sector.
The move comes amid a series of high-level regulatory and enforcement signals issued earlier this month. On December 5, Premier Li Qiang chaired a State Council executive meeting calling for a full-chain crackdown on tobacco-related illegal activities. This was followed on December 18 by an opinion released by the State Council General Office, which elevated enforcement deployment and explicitly brought e-cigarettes and nicotine pouches under tighter oversight.
According to the STMA, the latest policy measures are intended to implement restrictive industrial policy requirements, curb what regulators describe as “involution-style” competition, mitigate excess capacity risks, and raise compliance standards among e-cigarette-related manufacturing enterprises.
From enforcement escalation to industrial policy execution
From a policy perspective, the STMA measures represent an extension and institutionalization of earlier enforcement actions. The agency’s drafting explanation shows that the policy is directly grounded in the State Council General Office’s opinion on cracking down on tobacco-related illegal activities, while shifting regulatory focus toward the operational and structural dimensions of the industry.
The STMA noted that since e-cigarettes were formally brought under China’s tobacco regulatory framework in 2021, regulatory measures have helped curb disorderly expansion and stabilize market order. However, regulators say persistent challenges remain, including sluggish exit of outdated capacity, structural supply-demand imbalances, and recurring export-related violations.
Against this backdrop, authorities are seeking to guide the industry toward more stable and compliant development through tighter controls on fixed-asset investment, capacity management and production planning.
Investment and capacity emerge as core regulatory levers
A central feature of the policy is stricter oversight of investment behavior by e-cigarette-related manufacturers. The document makes clear that new e-cigarette production projects are prohibited, while relocation and resumption projects are not allowed to increase capacity. In principle, capacity expansion through on-site technical renovation is also barred.
Exceptions may be granted only where enterprises demonstrate genuine market demand, compliance with industrial and regulatory policies, and adequate safety, environmental and technical conditions.
On capacity management, the policy introduces a system of approved production capacity. Approved capacity is to remain broadly stable, and enterprises are required to operate strictly within their authorized limits. Any adjustment must undergo re-approval and licensing procedures. At the same time, compliant enterprises are permitted to consolidate capacity through measures such as merging production sites, with the aim of improving utilization efficiency and management effectiveness.
Annual production controls and capacity exit mechanisms
Beyond capacity approvals, the policy also calls for total control over annual production volumes within approved capacity ceilings. Annual production targets will be set based on factors including market orders, with regulators adopting a cautious approach toward approving production scale adjustments to prevent disorderly competition.
The policy further emphasizes the establishment of market-based and law-based capacity exit mechanisms. Enterprises that fail to meet industrial policy requirements or mandatory standards related to product quality, safety, environmental protection or energy consumption, as well as those with persistently low capacity utilization or records of violations and credit failures, may see outdated production lines phased out and capacity reduced.
Regulators also plan to optimize industry structure by continuously updating technical standards, licensing conditions, inspection and certification systems.
Regulators cite “involution-style” competition and export violations
In its drafting explanation, the STMA explicitly identifies “involution-style” competition as a persistent problem in the e-cigarette sector, alongside structural supply-demand mismatches and recurring export violations.
The policy underscores stricter supervision across production, warehousing, logistics, transportation and export links, and calls for tougher action against practices such as illegal re-importation of exported products, false customs declarations, and failure to meet quality and safety standards. Enterprises are required to assume full responsibility for compliance across the entire export supply chain.
Industry perspective: policy may accelerate supply chain consolidation
Alan Zhao, co-founder and chief executive of 2Firsts, said in an analysis that the policy sends several signals worth close attention.
Zhao noted that Chinese regulators have clearly recognized the negative impact of disorderly competition among e-cigarette enterprises on both domestic and international markets, and are now stepping up corrective efforts through more systematic policy tools. He added that the measures are likely to accelerate the exit of inefficient and poorly managed players, while offering more favorable policy conditions to compliant and well-managed firms, potentially speeding up consolidation and increasing concentration across China’s e-cigarette supply chain.
Zhao also said that regulators are increasingly adopting institutionalized approaches to address overseas compliance violations by Chinese enterprises, a trend that could have positive long-term implications for the global market.
Implications for regulators and international brands
From a global perspective, Zhao said regulators in other countries may need to strengthen cooperation with Chinese authorities, including closer alignment on policy frameworks and product standards, enhanced information sharing, and coordinated cross-border action against non-compliant enterprises, in order to improve the effectiveness of efforts to combat illicit trade.
For international brands, he said closer oversight and continuous monitoring of upstream manufacturing and supply chain partners in China will be increasingly important, as compliance risks at the manufacturing level could have downstream consequences for brand reputation and market access.
The STMA said it will roll out supporting guidelines on supply-demand management and fixed-asset investment, and further enhance regulatory effectiveness through digital and credit-based oversight tools. How these measures are implemented in practice, and their longer-term impact on industry structure, remains to be seen.
For continued coverage of regulatory and market developments in China’s e-cigarette and nicotine sectors, follow 2Firsts.
Cover image generated by ChatGPT.
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