Electronic cigarettes usher in the "strong supervision era"

  China News Weekly reporter / Zhou Qunfeng

  On March 11, the State Tobacco Monopoly Administration issued the "Measures for the Administration of Electronic Cigarettes" (hereinafter referred to as the "Measures").

This new industry regulation, which will be implemented on May 1, prohibits the sale of flavored e-cigarettes other than tobacco flavors and e-cigarettes that can add atomizers by themselves, and must not exclusively operate marketed e-cigarette products. The issuance and listing of stocks shall be reported to the tobacco monopoly administrative department of the State Council for examination and approval.

A number of interviewed industry insiders said that after the implementation of these regulations, the market pattern of electronic cigarettes will be stirred up, bringing huge challenges to practitioners.

  The original target group for e-cigarettes was smokers who wanted to quit.

However, while the e-cigarette market is developing rapidly, it is in a state of "three noes" due to its vague identity (neither drugs, nor health products and medical devices, let alone tobacco) and a long-term lack of supervision, that is, no product standards, no quality Regulation, no safety evaluation.

  Ao Weinuo, secretary general of the Electronic Cigarette Industry Committee of the China Electronic Chamber of Commerce, told China News Weekly that after the implementation of the "Measures", the electronic cigarette industry in my country will end the situation of disorderly development, and will usher in a new situation of standardized and legalized development. This is also the global trend.

"In the future, for China's e-cigarette industry, whose exports account for more than 90% of the global market share, the direction of encouraging exports and actively expanding overseas markets will not change. Next, we will assist e-cigarette companies to actively produce compliant products."

Rapid development in a long-term regulatory gap

  Few people have noticed that "electronic cigarette", a Chinese invention, has quietly developed for 20 years and has produced a huge global market.

  In 2003, Chinese pharmacist Han Li invented the electronic cigarette. He is also known as the "father of electronic cigarettes".

Han Li wanted to try to get a way to both ingest nicotine and avoid tar, a carcinogen.

He uses an electronic atomizer to ultrasonically atomize nicotine (nicotine), thereby achieving the same smoke, taste and feel as a cigarette without burning it.

  In 2004, he founded the world's first e-cigarette brand "Ruyan" and positioned it as "a smoking cessation aid".

Ruyan is neither a traditional cigarette nor a smoking cessation product stipulated by the state. It can not only solve the addiction to smoking, but also advertise the function of smoking cessation by itself.

In 2008, Ruyan Group was listed on the Hong Kong Stock Exchange, and its stock price was as high as HK$116, with a market value of nearly HK$120 billion.

In 2013, Ruyan was acquired by Imperial Tobacco, the fourth largest tobacco company in the world, for US$75 million.

  According to public information, electronic cigarettes are mainly composed of e-liquid (including nicotine, flavor, solvent propylene glycol, etc.), heating system, power supply and filter tip. Through heating and atomization, aerosols with specific odors are generated for smokers to use.

On July 22, 2019, Mao Qun'an, director of the Planning Department of the National Health and Medical Commission, introduced at a press conference that domestic and foreign studies have found that the aerosols produced by electronic cigarettes contain many toxic and harmful substances, and various additives in electronic cigarettes. There are also health risks.

In addition, the nicotine concentration labels contained in many electronic cigarette products are vague, which can easily lead to overdose by users.

At the same time, electronic cigarette appliances also have safety risks such as battery explosion, smoke liquid penetration, and high temperature burns.

  On October 22, 2021, the "Research Report on Electronic Cigarette Marketing and Its Impact on Adolescent Health" released by the Tobacco Control Research Center of the Institute of Health Communication, Fudan University shows that in addition to the website, the marketing momentum of electronic cigarettes on Weibo is also very strong.

Zheng Pinpin, a professor at the research center, said: "Many e-cigarette brands publish Weibo posts, which weaken the harm of e-cigarettes, and implant various festivals, solar terms, love and family relationships in their marketing methods to show their individuality, and some even It will also release relevant posters in conjunction with current events such as the Olympics, but the real purpose is actually to promote electronic cigarette products.”

  In the online interview section of the official website of the National Health and Health Commission, Hu Dayi, director of the Heart Research Institute of Peking University People's Hospital and president of the China Tobacco Control Association, said: "Many people use e-cigarettes as a substitute for smoking cessation, which is very wrong and absurd. E-cigarettes do not help tobacco dependence quit smoking, but aggravate the state of nicotine addiction.”

  Li Enze, deputy director and secretary-general of the Public Welfare Legal Professional Committee of China Smoking Control Association, told China News Weekly that according to the "Product Quality Law", products that are harmful to the human body can only be produced and approved under strict national approval conditions. For sale, the outer packaging of e-cigarettes should also clearly indicate that "smoking is harmful to health", but there has been a lack of supervision for a long time, and no approval and filing have been conducted.

"In the past ten years, the laws and regulations of e-cigarettes have been blank. Only some cities have stipulated that smoking e-cigarettes in public places is prohibited when revising the laws and regulations of tobacco control."

  On January 1, 2019, the newly revised "Hangzhou Municipal Regulations on Smoking Control in Public Places" clearly stipulated that not only smoking tobacco products and smoking traditional cigarettes, but also electronic cigarettes are prohibited in places where smoking is prohibited; The SAR's Smoking Control Regulations intend to include e-cigarettes in the scope of tobacco control.

  According to Li Enze, e-cigarettes were only used for export at the earliest, and by around 2019, the development of the e-cigarette industry in China is also accelerating.

At present, there are thousands of e-cigarette-related companies in China involving e-liquid, nicotine additives, outer packaging, and finished e-cigarettes, with hundreds of thousands of employees.

  Bode (Shenzhen) Technology Co., Ltd. has the entire industry chain of electronic cigarettes, covering the whole line of electronic cigarette products such as electronic cigarettes, atomizing cores, and e-liquids. Fang Hui, the company's partner and CMO, told China News Weekly that China's electronic cigarette industry A large number of related companies have appeared, but now the mainstream e-cigarette companies are 20 or 30, and they are mainly concentrated in Shenzhen.

"The OEM characteristics of this industry are relatively significant. There are many factories in Shenzhen, which is conducive to the development of this industry."

  CCTV has reported that a set of electronic cigarettes with a retail price of about 200 yuan, the factory price is about 50 yuan; while a disposable electronic cigarette with a retail price of about 40 yuan, the hardware cost is only about 10 yuan.

The high returns, coupled with the huge room for brand growth, have attracted a lot of capital into the e-cigarette industry.

  On December 17 last year, the "2021 Electronic Cigarette Industry Blue Book" jointly released by the Electronic Cigarette Industry Committee of the China Electronic Chamber of Commerce and the Volume Think Tank shows that in 2021, the domestic retail sales of electronic atomized cigarettes are estimated to be 19.7 billion yuan, a year-on-year increase of 36%. , the global retail sales is estimated to reach 80 billion US dollars, a year-on-year increase of 120%, and it is expected to maintain a growth rate of 35% in the next three years.

Export is the choice of many domestic e-cigarette brands.

In 2021, the domestic e-cigarette export scale is expected to reach 138.3 billion yuan, a year-on-year increase of 180%, with exports to the United States accounting for more than 50%, followed by the European Union and Russia.

  At present, there are more than 1,500 domestic e-cigarette manufacturers and brand companies, nearly 100,000 supply chain and surrounding service companies, and more than 25 related listed companies, including Fog Core Technology, Smol International, and China Bolton.

Article 8 of the "Measures" stipulates that the initial public offering (IPO) and listing of electronic cigarette manufacturers should be reported to the tobacco monopoly administrative department of the State Council for review and approval.

  Fang Hui said that this regulation is expected. With the rise and development of an industry, strengthening the supervision of listed companies is a problem faced by all industries.

"Previously, the e-cigarette market was more like a capital-driven industry. Now that the competent authority has clearly defined the tobacco system, the market logic will undergo great changes, and the interests of consumers must be adhered to." He believes that with the implementation of the policy , the industry competition will be more orderly and benign, and some leading companies in the industry will definitely run out. The core competitiveness of enterprises to stand out is product technology and channels.

  Chen Zhong, an expert in the electronic cigarette industry and the editor-in-chief of "Blue Hole New Consumption", a professional media in the domestic electronic atomization industry, also said in an interview with "China News Weekly" that the IPO regulations that require review and approval will help curb capital overheating and capital. The disorderly growth has a strong control effect on the industrial scale of electronic cigarettes.

'Flavor ban' sparks heated debate

  The new regulations on e-cigarettes involve all aspects of the e-cigarette industry.

In Li Enze's view, the "Measures" responded to the long-term concerns of the industry, and there are many improvements.

For example, in terms of advertising, Article 21 of the "Measures" stipulates, "The supervision and management of electronic cigarette advertisements shall be governed by the provisions on tobacco advertisements in relevant laws, regulations and rules. It is prohibited to hold exhibitions, forums, etc. to promote electronic cigarette products. Expo, etc." In terms of sales channels, Article 23 stipulates that "it is prohibited to use vending machines and other self-service sales methods to sell or sell electronic cigarette products in disguise."

  Article 26 of the "Measures", which has attracted the most attention, stipulates that "it is prohibited to sell flavored electronic cigarettes other than tobacco flavors and electronic cigarettes that can be added with atomizers." Many practitioners said that this means that on May 1 this year, After that, the sale of various flavored electronic cigarettes will be banned in the market, "this one will have a greater impact on the electronic cigarette market."

  In addition to developing traditional tobacco-flavored products, e-cigarette manufacturers have also developed products with flavors such as grape, lemon, and cola by adding ingredients such as essence and e-liquid.

Fang Hui told China News Weekly that currently domestic flavored e-cigarettes account for about 90%.

For example, a company has developed 30 different flavors of electronic cigarettes, only about 3 kinds of pure tobacco flavors, and the rest are flavored electronic cigarettes.

Some small e-cigarette brands do not even produce tobacco-flavored products.

In contrast, Bode's tobacco-flavored e-cigarettes account for a relatively high proportion in China, which has a certain relationship with the company's history.

Bode was established in 2013 and began to sell in the Chinese market in 2016.

At that time, most of Bode's products were tobacco-flavored.

Domestic cartridge-replaceable electronic cigarette products emerged in 2018, and flavored electronic cigarettes quickly became mainstream.

"Many companies were established after 2018. When they were established, the e-cigarette market had entered the era of flavored e-cigarettes."

  Li Enze said that e-cigarette companies focus on cultivating consumer habits, and even specialize in marketing to women and youth groups, such as putting some thought into the outer packaging to make people look "cooler"; they will also sponsor music festivals and other activities to increase Great marketing efforts.

"It is difficult to market cigarettes in fashion, but electronic cigarettes have a variety of styles, which are entertaining and easy to market."

  Xiao Lin, a researcher at the Tobacco Control Office of the Chinese Center for Disease Control and Prevention, once said, "The number of people aged 15 and above using e-cigarettes in China is about 10 million. The people who use e-cigarettes are mainly young people, and the usage rate of the 15-24 age group is The highest, the way to obtain e-cigarettes is now mainly through the Internet, accounting for 45.4%.”

  E-cigarettes with stylish appearance and various flavors are attracting more and more young people to buy them, and how to prevent young people from buying e-cigarettes has become a topic of public concern.

Article 18 of the "Measures" mentioned that "Ordinary primary and secondary schools, special education schools, secondary vocational schools, specialized schools, and kindergartens shall not set up sales outlets for electronic cigarette products." Li Enze believes that this regulation has positive significance, but It is not stated how many meters the "surrounding" range is.

In practice, it is often carried out according to 50 meters, "but this distance is still very close."

Beijing's Tobacco Control Regulations stipulate a distance of 100 meters, and some places stipulate a distance of 200 meters. He suggested that it should be controlled at least 100 meters away.

  Li Enze believes that the current "Measures" do not specify the scope of ban on electronic cigarettes, and it is still possible to sell electronic cigarettes in public places such as shopping malls, airports, and railway stations. Putting them together and selling them will have a bad orientation for teenagers.

"In the future, it should be clearly stipulated that the sale and use of electronic cigarettes should be prohibited in areas where young people are concentrated." An insider of an electronic cigarette company said in an interview that sales management and technical means can be used to prevent the sales of electronic cigarettes to minors, such as Use face recognition, a single code to verify members, etc.

  Regarding the management of the "flavor" of e-cigarettes, some people in the industry believe that there should be no "one size fits all". For example, countries such as the United Kingdom do not restrict the flavors of e-cigarettes.

An employee of an e-cigarette company who did not want to be named told China News Weekly that from the experience of the United States, the flavor ban may bring two results: the first is a recovery in the smoking rate of cigarettes, and the second is smuggling and the black market.

  Chen Zhong told China News Weekly that the impact on the supply chain (after the implementation of the flavor ban) is mainly due to the reduction in production capacity.

The proportion of flavored pods in the domestic market is very high. After the ban, this part of the production capacity will be vacant, and those with strength can turn to overseas exports, but small and medium-sized supply chains may be forced to close.

  Li Enze believes that after the implementation of the "Measures", it is still allowed to continue to sell electronic cigarettes containing tobacco ingredients. For electronic cigarettes produced in China that are specially used for export, they can continue to be produced as long as they meet the regulations of the export destination country, and there is nothing for export. influence.

Data shows that the current consumption scale of the foreign e-cigarette market far exceeds that of China.

According to data released by the Electronic Cigarette Industry Committee of the China Electronic Chamber of Commerce, the export value of China's electronic cigarette industry in 2021 is about 138.3 billion yuan, and the retail sales of China's electronic cigarettes in 2021 is estimated to be 19.7 billion yuan, with a difference of nearly 120 billion yuan.

Supporting details to be clarified

  Compared with the clearly stated "taste ban" and other regulations, some experts and industry insiders said that there are still some regulations in the "Measures" that need to be clarified by publishing guidelines.

  Article 20 of the "Measures" stipulates that e-cigarette product manufacturers and e-cigarette brand holders that have obtained tobacco monopoly licenses in accordance with the law shall sell e-cigarette products to e-cigarette wholesale enterprises through the e-cigarette transaction management platform.

Electronic cigarette wholesale enterprises shall not provide electronic cigarette products to units or individuals that are not qualified to engage in electronic cigarette retail business.

Enterprises or individuals that have obtained the tobacco monopoly retail license and are qualified to engage in the retail business of electronic cigarettes shall purchase electronic cigarette products from local electronic cigarette wholesale enterprises, and shall not exclusively operate the electronic cigarette products sold on the market.

  An industry insider said that this regulation means that in the future, some e-cigarette retail stores must obtain a tobacco monopoly retail license before they can operate, and exclusive operations are not allowed, that is, they cannot open single-brand stores.

"In other words, if the existing specialty stores want to continue to operate, they must obtain a license to transform into a collection store in the next month or so."

  According to the "2021 Electronic Cigarette Industry Blue Book", at present, there are about 190,000 domestic electronic cigarette retail stores, including specialty stores, collection stores, and authorized stores, of which about 47,500 specialty stores operate a single brand.

At present, there are more than 500 specialty stores, including RELX, Yuzi, Magic Flute, Ono and other 9 electronic cigarette brands. Among them, RELX brand stores have a total of about 27,600, accounting for about 58.2% of the total number of specialty stores in the market.

At present, the retail network of e-cigarettes has penetrated into cities at all levels, with an average of 1,301 e-cigarette retail stores in each first-tier city and 33 in each fifth-tier city.

Another data shows that 75.5% of the stable customers of e-cigarette retail stores are young male office workers.

  Several persons in charge of e-cigarette specialty stores said that the provisions of the "Measures" are still relatively general, and the procedures for obtaining licenses have not yet been clarified. Now it is only more than a month before the policy is implemented. It is hoped that the relevant departments will implement this article. be clarified.

The aforementioned industry insiders also believe that the smooth implementation of the new e-cigarette regulations still requires a lot of supporting guiding documents, "After all, there are too many companies and practitioners involved, the time is too short, and there are too many changes, and the competent authorities need to announce it as soon as possible. A series of operational details".

  Chen Zhong told "China News Weekly" that when he communicated with the e-cigarette industry, both from the enterprise side and the store owner's side, he reported that there is currently a lack of detailed guidelines for each link, and he hopes to extend the transition period and buffer period.

"If the detailed rules come out as soon as possible, and more transition and buffer periods are given, I believe that brands can handle it properly and operate in compliance." He revealed that there is currently a lack of various detailed rules, resulting in each link not knowing what to do next manage.

Many people worry about not being able to obtain a license and thus losing business opportunities in the industry.

After the "Measures" officially take effect, it may trigger a wave of store closures, and a large wave of physical stores will be forced to close.

  However, Li Enze believes that there is no short transition period.

Because as early as a few years ago, the state has relevant regulations.

For example, in 2017, the "Notice on Strengthening the Supervision of the Tobacco Monopoly Market" issued by the State Tobacco Monopoly Administration clarified that in accordance with the requirements of relevant laws and regulations such as the Tobacco Monopoly Law, heat-not-burn cigarettes were included in the scope of supervision; in 2018, the State The Tobacco Monopoly Administration issued the "Notice of the State Tobacco Monopoly Administration on Printing and Distributing the Key Points of Comprehensively Deepening the Reform in 2018", which mentioned the need to "actively promote the incorporation of new tobacco products such as electronic cigarettes into supervision, and further strengthen the market analysis of electronic cigarettes and research on supervision models" In November 2021, the State Council issued an announcement to revise the Regulations on the Implementation of the Tobacco Monopoly Law of the People's Republic of China, adding Article 65: "Electronic cigarettes and other new tobacco products shall be implemented with reference to the relevant provisions of these Regulations on cigarettes".

  Li Enze believes that in the face of the relevant notices and announcements that have been issued in recent years, e-cigarette companies should have predicted that the supervision of this industry will gradually tighten, and the production model should be adjusted in time to deal with the increasingly strict supervision. .

  As a practitioner, Fang Hui believes that the "Measures" will have a great impact on the e-cigarette industry. It is expected that after its implementation, it will reshape the industry's production, processing, commercial operations, retail and other links.

"We will work hard to adapt to the environment, meet challenges, and make adjustments in accordance with regulations in terms of technological improvements, and we are confident to respond."

  "It is a trend to switch from cigarettes to the next generation of new harm reduction tobacco products, and it will take a long time. I hope the industry and users will have enough patience to wait." Chen Zhong said that in the current lack of detailed guidelines and time constraints, electronic cigarettes Enterprises can only do their best to prepare in advance based on public information, embrace changes, and prepare for compliance at any time.

"The new regulations do not kill e-cigarettes with a single stick. It is not only an improvement in my country's supervision over other countries, but also recognition of the choice of e-cigarettes for adult smokers, and also leaves room for development for the industry."

  "China News Weekly" Issue 11, 2022

Statement: The publication of "China News Weekly" manuscripts is authorized in writing

Keywords: