China's State-run Media Sees Promising Future in E-cigs

Industry InsightRegulationsMarket by CNR
May.06.2023
China's State-run Media Sees Promising Future in E-cigs
Strengthened regulation will not suffocate the industry, but benefit development.

Editor's foreword: China's national media China National Radio (CNR) published an article today based on its joint visits with 2FIRSTS at multiple Chinese e-cigarette companies and came to an conclusion that "Strengthened Regulation Benefits Orderly Development; China is Expected to Incubate Global Brands". Below is the full article translated by 2FIRSTS English Editor-in-Chief Ellesmere Zhu. The translation is provided for reference only. The Chinese original text is the only authoritative source of information.

 


 

Surge of E-cigarettes Going Global -- 

Strengthened Regulation Benefits Orderly Development, China is Expected to Incubate Global Brands*

 

CNR, Beijing, May 6 2023

 

According to data released recently by the National Bureau of Statistics (NBS), China's foreign trade maintained growth in the first quarter, with strong performance in exports, which increased by 8.4% year-on-year. In March, the total import and export value reached 3.7094 trillion yuan**, up 15.5% year-on-year, including 2.1552 trillion yuan in exports, an increase of 23.4%, higher than market expectations. Fu Linghui, spokesperson for the NBS and Director of the Comprehensive Department of National Economy, said on the same day that China's stable foreign trade policy will continue to bear fruits in the next stage.

 

Under the backdrop of China's economic recovery and rapid growth in exports, how are Chinese e-cigarette manufacturing enterprises, which have been accelerating their overseas expansion since the implementation of New National Standard regulations last year, developing? What are their expectations for China's e-cigarette exports? The reporter from the CNR, in cooperation with the global atomization technology think tank 2FIRSTS, recently visited related enterprises to learn more about the situation.


World's Largest E-cigarette Exporter

China is the world's largest e-cigarette manufacturer and exporter. In recent years, China's e-cigarette exports have been continuously increasing. According to the "2022 E-cigarette Industry Export Blue Book" (hereinafter referred to as the "Blue Book") jointly produced by the E-cigarette Professional Committee of the China Electronics Chamber of Commerce and Shenzhen 2FIRSTS Technology Co., Ltd., China's e-cigarette export volume in 2022 is expected to reach 186.7 billion yuan, a year-on-year increase of 35%. In 2020, the export scale reached 49.4 billion yuan, a year-on-year increase of 180%; in 2021, the export scale reached 138.3 billion yuan, a year-on-year increase of 180%.

 

The "Blue Book" also shows that there are currently more than 1,500 e-cigarette manufacturing and brand enterprises in China, with over 70% of them mainly exporting products overseas. There are nearly 100,000 e-cigarette supply chain and peripheral service enterprises. Among them, about 13,000 enterprises are directly related to the industry, and more than 82,000 are indirectly related. E-cigarette patent applications have emerged in the past three years. From 2019 to 2021, the annual number of patent applications exceeded 5,000. According to 2FIRSTS, the total number of newly authorized patents related to e-cigarettes (including heated tobacco products) in China in 2022 alone reached 6,248.

 

At present, China's main e-cigarette export destinations include the United States, the European Union, the United Kingdom, Russia, and ASEAN. During the visit, the reporter learned that almost all e-cigarette manufacturing enterprises are actively adapting to local regulatory policies and consumer habits, striving to seize the overseas market.

 

Shenzhen Imiracle Technology Co., Ltd. (hereinafter referred to as Imiracle) is a leading e-cigarette export company located in Shenzhen. Imiracle Senior Vice President Jiang Hui told reporters that e-cigarettes, as a new business format, have formed an industrial pattern of "Made in China, Consumed by the World," and the entire e-cigarette industry is continuously transforming towards standardization, normalization, and internationalization.

 

Strengthened Regulation Benefits Orderly Development, Minor Protection Becomes Worldwide Consensus

Strengthening regulations is conducive for the orderly development of the entire industry, which is the consensus of the interviewed e-cigarette manufacturing enterprises. These enterprises stated that since the "E-cigarette Management Measures" (hereinafter referred to as the "Measures") came into effect on May 1, 2022, they have completed the license application and export filing work as required by the "Measures" and have strictly conducted production and operation activities in accordance with regulatory requirements.

 

Globally, stricter regulations seem to be the overall trend of the global e-cigarette market. According to the latest "Global E-cigarette Regulatory Monthly Report" released by 2FIRSTS, more than 170 regulatory events occurred worldwide in March 2023. Echo Guo, the co-founder and COO of Shenzhen 2FIRSTS Technology Co., Ltd., said in an interview that the global e-cigarette market is currently in a period of regulatory transformation, with various countries adjusting and introducing e-cigarette regulatory policies. Chinese e-cigarette brands going overseas need to adapt to global policy changes. During the visit, many companies believed that the biggest uncertainty in the overseas e-cigarette market lies in local regulatory policies.

 

Shenzhen Uwell Technology Co., Ltd. (hereinafter referred to as Uwell) CMO Bai Feng told reporters that in the past, as the market continued to expand and the industry developed rapidly, some e-cigarette manufacturers operated in a "rough" manner, and counterfeit and inferior products frequently occurred. To curb such phenomena, countries around the world have begun to require the standardization of the industry, formulating, and promulgating a series of regulatory policies and access 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, such as registration and filing certificates.

 

Bai Feng also said that "going overseas requires adapting to different regulatory policies in different places, as well as addressing differences in channels, cultures, and consumer habits. Global e-cigarette regulatory policies vary, and each country's market and consumers have different product demands for e-cigarettes. This requires manufacturers to take corresponding measures and research and development based on local specific conditions, paying attention to every aspect from research and production to product packaging, logistics and transportation, and sales promotion, and strictly abiding by local laws and cultural differences."

 

Yunnan Win Soul Cloud Technology Co., Ltd. (hereinafter referred to as Win Soul) is a high-tech enterprise integrating the research, production, and sales of flavors and fragrances. The company focuses on the research and development of flavors and fragrances in the field of tobacco flavoring. Win Soul President Hu Xin believes that at present, not only in China, but also globally, the regulation of e-cigarettes is gradually being strengthened. For Chinese e-cigarettes to go overseas, compliance with local laws and regulations is the minimum requirement and a screening mechanism. Through regulation, the entry threshold is raised, such as restrictions on nicotine, requirements for flavors and fragrances, and bans or restrictions on certain substances, all of which are to protect consumers.

 

The reporter noticed that countries are strengthening the protection of minors. To actively cooperate with local regulatory policies, Chinese e-cigarette manufacturing enterprises have similar practices. They mainly mark relevant warning statements from product packaging, official websites to store terminals, emphasizing the importance of protecting minors. They also innovate in product technology, such as adding child locks to e-cigarette designs to prevent children from accidentally using and consuming e-cigarettes. In addition, they explicitly prohibit the sale of e-cigarettes to minors in channel and sales control and stipulate corresponding breach liabilities and penalties, which will be imposed once discovered. Jiang Hui, Senior Vice President of Imiracle, told reporters that in December last year, Imiracle launched the "Lighthouse Plan," aimed at taking on the responsibility of protecting minors and advocating the protection concept of "prohibiting the use of e-cigarette products by minors" globally. In addition, the German market, as the company's pilot market for the first batch of child-lock products, has received positive feedback.

 

Shenzhen Maintains the Largest E-cigarette Export City, Thanks to Industrial Chain Advantages

In the e-cigarette industry, there is a popular saying: "To see the global e-cigarette industry, look at China; to see China's e-cigarette industry, look at Shenzhen; to see Shenzhen's e-cigarette industry, look at Bao'an***."

 

Shenzhen is a global production and export base for e-cigarettes. According to Shenzhen Customs statistics, e-cigarette exports from Shenzhen increased by nearly 40% in the first two months of this year. In 2022, Shenzhen exported 46.09 billion yuan worth of e-cigarettes, accounting for 68.3% of the total national export value. In the first two months of this year, Shenzhen exported 7.1 billion yuan worth of e-cigarettes, an increase of 38.9% year-on-year, accounting for 66.9% of the total national e-cigarette export value, maintaining its status as the largest e-cigarette export city in China.

 

At the same time, Shenzhen Customs stated that Shenzhen's e-cigarette exports have two main characteristics. First, the vast majority are private enterprises exporting through general trade. In the first two months, Shenzhen's private enterprises exported 60.9 billion yuan, an increase of 42%, accounting for 85.8% of the total value of e-cigarette exports in Shenzhen during the same period. In the same period, exports through general trade reached 65.3 billion yuan, an increase of 40.5%, accounting for 92.1%. Second, the main markets are 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, Shenzhen exported 22.9 billion yuan to the United States, a decrease of 20.1%, accounting for 32.3% of the total value of e-cigarette exports in Shenzhen during the same period. It is still the largest market for Shenzhen's e-cigarette exports, but its share has dropped by 5.8 percentage points compared to 2022. During the same period, exports to the European Union, the United Kingdom, and Russia increased by 1.9 times, 90%, and 2.7 times, respectively, accounting for a total of 40.9%. In addition, exports to ASEAN reached 4.2 billion yuan, an increase of 1.3 times, accounting for 6%.

 

In the view of Jiang Hui, Senior Vice President of Imiracle, the release of e-cigarette export data by Shenzhen Customs for the first time has injected a boost of confidence for the industry's overseas enterprises. He introduced that Shenzhen has formed a complete industrial chain layout of upstream raw material supply, midstream product design and manufacturing, and downstream global market sales.

 

Zhan Xingyu, General Manager of Shenzhen Infinite-N Technology Ltd., told reporters that although some countries and regions have relatively low labor costs, the productivity of workers is also low. At the same time, Shenzhen has a complete e-cigarette supply chain, which is difficult to build abroad. Without a supply chain and relying on transportation from China, the entire production cost will increase. From a research and development perspective, if the R&D center is still in China, it will be difficult for each product to closely cooperate with the local production team, which will affect the smooth mass production of products. It is even more challenging to move R&D overseas because China's talent resources and core technology are currently irreplaceable.

 

The achievements of Shenzhen's e-cigarette industry in overseas markets cannot be separated from the support of the government. According to Bai Feng, CMO of Uwell, enterprises have received support from the local government during the process of going overseas. "The e-cigarette industry has been facing logistical bottlenecks. With the strong support of the Bao'an District Government and the efficient coordination of the E-cigarette Special Committee, Shenzhen Airport and related inspection units have introduced the 'Electronic Atomization Product List Enterprise Certification Standards' and 'Air Export Differentiated Security Inspection Operation Guidelines,' which have effectively helped us solve logistical problems and helped enterprises sail overseas."

 

In recent years, with the overall overseas data looking impressive, how do the interviewed e-cigarette companies view future prospects?

 

Bai Feng, CMO of Uwell, said that market research institutions predict that the global e-cigarette market will grow at a rate of 17% annually, and by 2024, it can be transformed into a market worth about 55 billion US dollars.

 

Hu Xin, President of Yunshuo Technology, believes that a global brand in the field of e-cigarettes may emerge from China in the future. In his view, a brand must have pricing power, brand premium, and consumers willing to pay for brand recognition, image, and tonality. At present, there are very few true e-cigarette brands, but China has a great advantage in e-cigarette manufacturing and exports. In the future, there is a significant opportunity to give birth to a global brand.

 

Jiang Hui said that the overseas expansion of e-cigarettes is a test for the industry's standardized development and continuous progress. Currently, countries are becoming more and more standardized in e-cigarette-related laws and regulations. Enterprises also need to adapt to regulatory changes and take compliance development as the basic criterion. At the same time, they should pay more attention to R&D and corporate social responsibility investments, such as continuously improving product quality, exploring technology for underage protection and environmental recycling, which will also promote the industry to embrace a more compliant and sustainable development.


Editor's note: 

* Source: https://finance.cnr.cn/zghq/20230506/t20230506_526242737.shtml
** CN¥ 1 = US$ 0.14 (May 6, 2023)

*** Bao'an: a district in southwestern Shenzhen

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