The mandatory national standard for electronic cigarettes will officially come into effect on October 1st this year. With major mainstream electronic cigarette brands obtaining licenses one after another, electronic cigarette products complying with the new national standard will soon hit the market.
Increase in tax rate may result in an increase in product prices.
On the evening of November 26, 2021, the Chinese government announced on its official website that in order to strengthen the regulation of new tobacco products such as e-cigarettes, the State Council has decided to make amendments to the Regulations on the Implementation of the Tobacco Monopoly Law of the People's Republic of China by adding a new article as Article 65: "New tobacco products such as e-cigarettes shall comply with the relevant provisions on cigarettes under this Regulation." On April 12th of this year, the State Administration for Market Regulation and the National Standardization Management Committee approved and issued a mandatory national standard for e-cigarettes, which will be implemented from October 1, 2022. The release of the mandatory national standard for e-cigarettes signifies the end of the production phase without national standards for Chinese e-cigarettes, which is of great significance to the industry.
The introduction of national standards for electronic cigarettes has garnered attention from both the industry and consumers as an important measure to regulate products and the industry. Of particular interest is the provision that "products should not exhibit any flavors other than tobacco." Additionally, experts have commented on the potential impact the policy may have on the future pricing of electronic cigarettes, highlighting that heavy taxation is a characteristic of traditional cigarettes with a 56% tax rate for Class A and 36% for Class B cigarettes according to the adjusted 2009 consumption tax rate. With the implementation of the new standards in October, an increase in the taxation of electronic cigarettes may lead to significant price increases for end-users.
There is a trend of concentrated purchase of non-standard products.
Journalists have noted that recent media reports state that electronic cigarettes will be subject to a 36% increase in consumption tax, similar to that imposed on category B cigarettes in China. This increase may result in a market-wide price hike of major electronic cigarette products such as JUUL, YOZO, and MOTI by at least 30%.
During their investigation, the journalist observed that before the mandatory national standard for electronic cigarettes came into effect on October 1, non-standard products such as flavored cigarettes that could still be sold without incurring consumption tax did not see a rise in market price. Multiple salespersons at electronic cigarette stores admitted that due to widespread concerns about a price increase for standard products after the imposition of a consumption tax, many areas experienced a phenomenon of consumers hoarding non-standard products such as flavored cigarettes.
In a small electronic cigarette store located near Sanlitun in the Chaoyang district of Beijing, there are many customers who come in to purchase products. The store owner says that the reason for the increase in purchases is mainly due to concerns about rising prices after taxes are imposed and the possibility that flavored e-cigarettes will be discontinued. As for the business status of e-cigarette stores before national standards are put in place, a store owner in Shenzhen said that the most popular flavors are currently sold out. "We used to worry about being able to clear out non-standard inventory before October 1st, but now we are more concerned about being able to get more popular products during this time," said one e-cigarette store owner.
During interviews with consumers, most of those who expressed a desire for bulk buying stated that "lower prices," "a larger variety of flavors," and "taking advantage of the final discounts" were their primary purchasing motivators. Some consumers noted they experienced shortages of popular e-pod flavors.
The industry will experience standardized development under strict regulation.
Experts attribute the popularity of non-standardized products such as flavored e-cigarettes in the current market to several factors. Aside from the cost savings of stocking up on soon-to-be-discontinued products, consumers' uncertain attitude towards new standardized products is also a significant factor.
A expert emphasized that the compulsory national standard GB 41700-2022 "Electronic Cigarettes," approved for release by the State Administration for Market Regulation and the National Standardization Management Committee, focuses on strengthening protection for minors and includes detailed standard regulations on the taste, safety of use, and protection of minors in the electronic cigarette industry. In the long run, under strong regulation, the electronic cigarette industry and consumer market will increasingly become normalized.
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