If Hong Kong Reopens E-Cigarette Trans-Shipment Will Enterprises Choose Hong Kong or Shenzhen?

Hong Kong's possible move to lift the ban will have a significant impact on the e-cigarette industry as Hong Kong was a major trans-shipment point for e-cigarette products from mainland China before the ban was imposed. On the topic, 2FIRSTS had an interview with Chen Minhui, Chairman of the Hong Kong Electronic Cigarette Association.

Chen Minhui (middle), Chairman of the Hong Kong Electronic Cigarette Association, visits the 2FIRSTS office in Shenzhen.

Hong Kong Loses More Than HKD$10 Billion Since the Ban Took Effect

Hong Kong's Financial Secretary Paul Chan estimated that Hong Kong's budget deficit will surpass HKD$100 billion (USD$12.7 billion) by the end of this year, almost twice the forecast, due to COVID-19 and post-pandemic global economy, according to South China Morning Post. What lies very beneath the fiscal performance is a narrow tax base. The Hong Kong government must find some long-term solutions to expand revenue streams, or many policies may be subject to being reversed.

That is exactly what's happening to the ban. As early as November 2021, three members of the Legislative Council of Hong Kong had raised objections to the Council. However, the policies prohibiting the trans-shipment and the sale of e-cigarettes were still brought into force on April 30, 2022.

According to Chairman Chen, Hong Kong has lost at least more than HKD$10 billion (USD$1.28 billion) since the ban took effect about half a year ago. "It's quite a lot of money, and I'm sure the Hong Kong government will want to keep it in Hong Kong."

Chen Minhui (left), Chairman of the Hong Kong Electronic Cigarette Association

The Legislative Process for Reversing the Ban in Hong Kong

South China Morning Post reported an insider claimed that Hong Kong may be reversing its ban by the end of this year. But according to Chairman Chen's understanding of Hong Kong's legislative process, reversing the ban takes at least half a year. 

"Our Council member Frankie Yick Chi-ming is planning to submit a motion to the Council. Upon receiving the motion, the Council will deliberate it for the first time and then debate it at the Council meetings for the second and third times before it is passed. The whole process takes at least two or three months," said Chairman Chen.

Even if the above process goes well, there is still another step, "gazetting". It means that relevant laws and regulations of the Hong Kong SAR shall be published in the Government of the Hong Kong Special Administrative Region Gazette before they come into force. After gazetting, it takes at least three months to implement the motion. "Therefore, it will need at least half a year from submitting a motion to implementing it."

Chairman Chen said that if Hong Kong seeks to reverse the ban and keep relevant logistics and transportation in Hong Kong, it needs to negotiate with Shenzhen's airports and logistics community on specific cooperation methods.

If Hong Kong Reverses the Ban, Which Will Enterprises Choose for Exporting E-Cigarettes? Hong Kong or Shenzhen?

China exports approximately 500,000 tons of e-cigarettes every year. Hong Kong's status as a global transportation hub has given it an edge in transportation capacity. Meanwhile, Hong Kong airports adopt the same safety inspection rule as European, American, South Korean, and Singaporean airports, along with a simpler procedure has greatly facilitated transportation. In addition, Hong Kong's adjacency to Shenzhen, the vaping capital of the world, has also given it an advantage in transportation convenience. Therefore, about half of China's e-cigarette exports were forwarded through Hong Kong for continued transport overseas before the ban.

Following the implementation of the ban, Shenzhen airports have introduced the policy of white list enterprise accreditation and safety inspection, which has aimed to solve the difficulties facing e-cigarette export enterprises and improved the convenience of e-cigarette export transportation. As of October 21, 35 enterprises had passed the "white list" review.

Once Hong Kong reverses the ban, domestic e-cigarette enterprises will have a choice between Shenzhen and Hong Kong. 

According to Chairman Chen, the white list system set up by Shenzhen Airports has brought great convenience. However, only 35 of more than 600 e-cigarette manufacturers with production licenses are on the white list. It means the remaining 500 companies still do not have a stable system to export their products. If the ban is reversed, Hong Kong may be still the first choice for these enterprises not on the white list.

"Hong Kong International Airport boasts complete logistics services, so the delivery time of manufacturers will be faster. This means that businesses can collect money quicker and customers can place orders on shorter notice. It is beneficial for all parties." Despite the obvious advantages of Hong Kong airports, Chairman Chen raised two concerns.

The first is the stability of the policy. Even if the trans-shipment ban is lifted after half a year, is there any chance for it to be reinstated? The other is “how to stop e-cigarettes from entering the market, a question worth discussing,” if e-cigarette trans-shipment is legalized while the "sales prohibition" policy is still valid in Hong Kong. 

Will Hong Kong be aligned with the "new national standard e-cigarette"?

Chairman Chen argued that with the trans-shipment ban being lifted, there are two ways to prevent e-cigarettes from flowing into the territory after landing in Hong Kong, forming a black market.

The first is technology. Chairman Chen said that it's feasible to place positioning chips on logistics workers or into boxes, but this is costly.

The other approach is to communicate with the government and look for breakthroughs on the policy side. "I believe that next year when e-cigarettes have been banned in Hong Kong for one year, we will suggest (the Hong Kong government) to investigate the public's attitude towards e-cigarettes, and our Electronic Cigarette Association will also strive to make Hong Kong re-open to e-cigarettes. Hongkong is a part of China, so we will align with the country and adopt the new national standard products to sell pure tobacco-flavoured e-cigarettes."

When it comes to the future of the tobacco and e-cigarette industry, Chairman Chen predicts that with the increasingly strict anti-smoking measures, traditional tobacco will disappear around 2030, and in 2050, e-cigarettes will also cease to exist. By then, the e-cigarette industry may have already transformed into the direction of "medical vaporization" and become an emerging pillar of the medical industry.

Introduction to Hong Kong Electronic Cigarette Association:

Dedicated to promoting e-cigarettes among smokers to reduce the harm of traditional tobacco, Hong Kong Electronic Cigarette Association now has over 500 member enterprises across Hong Kong. In the near future, it is set to merge with the Asian Electronic Cigarette Association with its headquarter in Hong Kong.