China's E-cigarette Industry Goes Global Amid Strong Export Growth

Image source: China National Radio website.

According to data recently released by China's National Bureau of Statistics, the country's foreign trade maintained growth in the first quarter, with strong performance in goods exports, which increased by 8.4% compared to the same period last year. In March, the total import and export volume was 3.7094 trillion yuan, a year-on-year increase of 15.5%, with exports reaching 2.1552 trillion yuan, a 23.4% increase and higher than market expectations. Speaking on the same day, spokesperson for the National Bureau of Statistics and Director of the Comprehensive Statistics Department of the National Economic Commission, Fu Linghui, said that China's stable foreign trade policies will continue to show results in the next phase.

Against the backdrop of China's economic recovery and rapid growth in exports, how have Chinese electronic cigarette manufacturers fared since the implementation of new regulations last year, and what are their expectations for expansion overseas? In a recent investigation conducted by journalists from China National Radio and 2FIRSTS, a global vaping technology consultancy, several companies were visited to gather information on these matters.

China, the world's largest exporter of electronic cigarettes, is aggressively competing for foreign markets with its companies.

China is currently the largest manufacturer and exporter of electronic cigarettes globally. In recent years, the country's electronic cigarette exports have continued to rise. According to the "2022 Electronic Cigarette Industry Export Blue Book" produced jointly by the Electronic Cigarette Professional Committee of the China Electronic Commerce Association and Shenzhen 2FIRSTS Technology Co., Ltd., China's electronic cigarette exports are expected to reach a total of 186.7 billion yuan in 2022, representing a 35% increase from the previous year. In 2020, the export scale reached 49.4 billion yuan, representing a growth of 180% year on year, while in 2021, the export scale reached 138.3 billion yuan, representing a growth of 180% year on year.

According to the "Blue Book," there are currently over 1,500 electronic cigarette manufacturers and brands in China, with over 70% of them primarily exporting their products overseas. The electronic cigarette supply chain and related service companies account for nearly 100,000 enterprises. Among them, there are approximately 13,000 directly related companies and over 82,000 indirectly related ones. Electronic cigarette patent applications have been on the rise, with over 5,000 applications submitted annually from 2019 to 2021. Based on statistics from 2FIRSTS, the total number of authorized patents for electronic cigarettes (including heated non-combustible products) in China will reach 6,248 in 2022 alone.

Currently, the main export destinations for electronic cigarettes in China include the United States, the European Union, the United Kingdom, Russia, and the Association of Southeast Asian Nations (ASEAN). During a visit to several electronic cigarette production companies, journalists discovered that almost all of them are actively adapting to local regulatory policies and consumer habits in order to seize the overseas market.

IQIYI Technology (Shenzhen) Co., Ltd. (referred to as IQIYI) is a leading electronic cigarette exporting enterprise based in Shenzhen. According to Mr. Jiang Hui, Senior Vice President of IQIYI, as a new industry, electronic cigarettes have established a global production and consumption pattern with "Made in China, consumed worldwide". The entire electronic cigarette industry is undergoing a transformation towards regulation, standardization, and globalization.

Strengthened regulation benefits the orderly development of the industry; protecting minors has become a global consensus.

The strengthening of regulations is beneficial for the orderly development of the entire electronic cigarette industry, and this is a consensus among interviewed electronic cigarette manufacturers. These companies have stated that since the implementation of the "Electronic Cigarette Management Measures" (referred to as the "Measures") on May 1, 2022, they have completed the license application and export record work in accordance with the requirements of the Measures, and have vigorously carried out production and business activities in strict accordance with regulatory requirements.

Looking at the global electronic cigarette market, it seems that stricter regulation is becoming the overall trend. According to the latest monthly report on global regulation of electronic cigarettes released by 2FIRSTS, there were over 170 regulatory events worldwide in March 2023. In an interview with 2FIRSTS co-founder and COO Guo Xiaoyu, he stated that the global electronic cigarette market is currently entering a period of regulatory change, with countries adjusting and implementing electronic cigarette regulatory policies. Chinese electronic cigarette brands going overseas must adapt to global policy changes. During visits with several companies, it was found that the biggest uncertainty in overseas electronic cigarette markets is the local regulatory policy.

According to Bai Feng, the CMO of Shenzhen UViR Technology Co., Ltd. (referred to as UViR), as the market has continued to expand and the industry has developed rapidly, some e-cigarette manufacturers have operated in a rough and unrefined manner and relied on unsustainable growth, resulting in frequent incidents of counterfeit and shoddy products. To address these issues, countries around the world have begun to demand standardization in the industry, and have formulated and issued a series of regulatory policies and admission regulations. For example, exporting to countries and regions such as the United States, the European Union, the United Kingdom, Canada, South Korea, the United Arab Emirates, and Malaysia requires various certifications, including registration and filing certificates.

Bo Feng also explained that going global requires adapting to different regulatory policies, as well as dealing with differences in distribution channels, cultures, and consumer habits. Electronic cigarette regulations vary globally, and different countries and markets have unique demands for electronic cigarette products. This demands that manufacturers must take appropriate measures and conduct research and development based on specific local circumstances. From research and development to production, packaging, transportation and promotion, attention must be paid to every aspect to strictly comply with laws and regulations and cultural differences.

Yunshuo Technology Co., Ltd. (referred to as Yunshuo Technology), is a high-tech enterprise that integrates research and development, production, and sales of flavors and fragrances. The company focuses on the technical development of flavors and fragrances in the tobacco industry. According to Hu Xin, the President of Yunshuo Technology, not only in China but also globally, regulations on electronic cigarettes are gradually becoming stricter. Therefore, when Chinese electronic cigarettes enter foreign markets, meeting the regulatory requirements of the local country is the minimum standard and a selection mechanism. Through regulation, the threshold is raised, such as restrictions on nicotine, requirements for flavors and fragrances, and bans or restrictions on certain substances; all aimed at consumer protection.

Journalists have noticed that countries around the world are increasingly strengthening their protection for minors, and Chinese e-cigarette manufacturers are taking similar measures to actively comply with local regulatory policies. This mainly involves prominently displaying relevant warning labels from product packaging, official websites, to storefront terminals, emphasizing the importance of protecting minors. They have also innovated in product technology, for example, by adding child locks to the design of the smoking device to prevent children from misusing and inhaling e-cigarettes. In addition, channel and sales control expressly prohibits the sale of e-cigarettes to minors, with corresponding breach of contract responsibilities and penalty measures agreed upon. Once discovered, violators will be appropriately punished. Jiang Hui, the Senior Vice President of "Aiqiji," told reporters that the company founded the "Lighthouse Plan" in December last year to undertake the responsibility of protecting minors and promote the concept of "banning minors from using e-cigarette products" globally. In addition, the German market, as the pilot market for the company's first batch of child lock products, has received good feedback.

Shenzhen maintains its position as the largest electronic cigarette exporting city in China, displaying clear advantages in the industry chain.

In the electronic cigarette industry, there is a popular saying that goes, "The world looks to China for electronic cigarettes, China looks to Shenzhen, and Shenzhen looks to Bao'an.

Shenzhen is a major hub for the production and export of electronic cigarettes globally. According to statistics from Shenzhen Customs, electronic cigarette exports from the city grew by nearly 40% in the first two months of this year. In 2022, the export value of electronic cigarettes from Shenzhen is projected to reach RMB 46.09 billion, accounting for 68.3% of the country's total export value. In the first two months of this year alone, Shenzhen exported electronic cigarettes worth RMB 7.1 billion, representing a year-on-year increase of 38.9% and accounting for 66.9% of the country's total electronic cigarette exports, maintaining its position as the largest electronic cigarette export city in the country.

Meanwhile, the Shenzhen Customs stated that the export of electronic cigarettes in Shenzhen has two major characteristics. Firstly, the vast majority are exported by private enterprises through general trade. In the first two months of this year, private enterprises in Shenzhen exported a total of 6.09 billion yuan, an increase of 42%, accounting for 85.8% of the total value of electronic cigarette exports in Shenzhen during the same period. During the same period, exports through general trade amounted to 6.53 billion yuan, an increase of 40.5%, accounting for 92.1%. Secondly, it mainly sells to mainstream consumer markets such as Europe and the United States, with a decreasing proportion of exports to the United States. In the first two months of this year, Shenzhen exported 2.29 billion yuan to the United States, a decrease of 20.1%, accounting for 32.3% of the total value of electronic cigarette exports in Shenzhen during the same period. Even though the United States remains the largest market for electronic cigarette exports from Shenzhen, its proportion decreased by 5.8 percentage points compared to 2022. During the same period, exports to the European Union, the United Kingdom, and Russia increased respectively by 1.9 times, 90% and 2.7 times, totaling 40.9%. In addition, exports to ASEAN amounted to 420 million yuan, an increase of 1.3 times, accounting for 6%.

According to Jiang Hui, Senior Vice President of Miracle, the release of export data on e-cigarettes by Shenzhen Customs for the first time has given a boost to the overseas companies in this industry. He explained that Shenzhen has established a complete industrial chain layout, ranging from upstream raw material supply and midstream product design and manufacturing, to downstream global market sales.

The general manager of Shenzhen Haohan Yangtian Technology Co., Ltd., Zhan Xingyu, told reporters that while some countries and regions may have relatively low labor costs, their workers' productivity is also low. Additionally, Shenzhen has a complete electronic cigarette supply chain, which is difficult to establish abroad. Without this supply chain, production costs would rise if relying on transportation from China. From a research and development perspective, if the R&D center remains in China, it is difficult to closely cooperate with the local production team for each product launch, which can affect the smooth mass production of the product. Moving R&D abroad is even more difficult to achieve due to the current scarcity of talent resources and core technology in China.

The process of exporting e-cigarettes can face difficulties and bottlenecks. However, according to Bai Feng, CMO of YOOZ, "The e-cigarette industry has been facing logistics issues in the past. With the efficient coordination of the government of Bao'an District and the e-cigarette committee, Shenzhen Airport and related inspection units have developed the 'List of Enterprise Recognition Standards for Electronic Atomized Products' and the 'Differentiated Air Export Security Inspection Operation Guidelines,' which effectively helped us solve the logistics problem and also helped companies set sail for overseas markets.

In light of the impressive overall data from recent years regarding the export of electronic cigarettes, how do interviewed e-cigarette companies anticipate the future?

According to CMO Bo Feng of YOOVIR, market research agencies predict that the global electronic cigarette market will grow at a rate of 17% annually and could potentially convert into a market worth approximately $55 billion by 2024.

Hu Xin, the CEO of Yunshuo Technology, believes that China has the potential to produce a global brand in the electronic cigarette industry. According to him, a brand must have the power of pricing and brand premium, where consumers are willing to pay for brand recognition, image and identity. Currently, there are very few truly well-established electronic cigarette brands, but China holds a great advantage in manufacturing and exporting electronic cigarettes, and thus has a huge opportunity to create a global brand in the future.

Jiang Hui, Vice President at IQIYI, stated that the growth of electronic cigarettes in the global market is a test of the industry's standardization and progress. Currently, many countries are regulating electronic cigarettes with increasing precision, and companies need to adapt to these changes by prioritizing compliant development. At the same time, greater emphasis should be placed on research and development and the implementation of corporate social responsibility. For example, companies should focus on improving product quality, exploring ways to protect minors, and implementing environmentally friendly recycling techniques. These efforts will ultimately drive the industry towards sustainable and compliant development.