China has amended its laws so that vaping manufacturers and sellers fall under the authority of the country’s State Tobacco Monopoly Administration (STMA). The industry will now be tightly controlled by the authoritarian government’s regulators.
The change was ordered by the State Council (cabinet) and signed off by Premier Li Keqian. It was announced last Friday, according to Reuters. The new policy has been expected since the Ministry of Industry and Information Technology released draft rules in March. It takes effect immediately.
The STMA completely controls the tobacco industry in China—both regulating the product and selling it. The monopoly administration is actually housed in the same building as the China National Tobacco Corporation (usually called China Tobacco), which is the largest cigarette manufacturer in the world. Both are run by the Ministry of Industry and Information Technology.
More than half of Chinese men smoke cigarettes (and 26.6 percent of all adults), according to the World Health Organization. Nearly as many people in China smoke as the entire U.S. population—more than 300 million. In 2018, cigarettes brought in 5.45 percent of all Chinese tax revenue. The government of China may view growth of the Chinese vaping market as a threat to dependable tobacco tax revenues.
China banned online sales of vaping products in 2019, and regulation by the STMA will likely bring more restrictions. The regulatory agency strictly controls which products can compete in the Chinese tobacco marketplace, and the new rules will allow the STMA to micromanage vaping manufacturers the same way. What has been announced is essentially the Chinese equivalent of FDA's Deeming Rule: it sets the stage for the detailed regulations that will follow.
The domestic Chinese vaping product market is valued at 8.38 billion yuan (about $1.3 billion U.S.), according to the Global Times. The newspaper says the Chinese market grew at a rate of over 70 percent each year between 2013 and 2020. According to Shanghai Daily, the vaping industry provides three million jobs in the country, and vaping exports are valued at $15.6 billion (U.S.). Chinese research firm iiMedia says there are more than 170,000 e-cigarette businesses in the country, which produce almost all the vaping hardware sold around the world.
The news caused Chinese manufacturer RELX’ stock to fall 15 percent on the New York Stock Exchange (it later rebounded somewhat). RELX is the best known Chinese vape company with aspirations to dominate the domestic Chinese market. The company’s stock is currently trading at less than 20 percent of its high mark soon after its January 2021 initial public offering.
How the new government authority will impact Chinese manufacturers that primarily produce products for export isn’t yet clear. In 2019, the country issued draft regulations that would control every aspect of vaping product and e-liquid manufacturing, but those rules have yet to take effect.
Because of declining cigarette sales, state governments in the U.S. and countries around the world are looking to vapor products as a new source of tax revenue.
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