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China’s Retail E-Cigarette Market: An Overview

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If you’re a vaper, you know this story well. The modern e-cigarette originated in China a little over a decade ago. Pharmacist Hon Lik – a smoker – saw an opportunity and decided to create a better form of nicotine replacement. Lik reasoned that a device simulating the clouds and hand-to-mouth ritual of smoking would be more effective than products like nicotine gum in helping people quit, and he was right; his invention was the genesis of what would become a massive worldwide industry.

As of 2020, the Chinese vaping industry is now more than a decade old. Tens of millions of people around the world now vape, and the majority of those people are former smokers who have quit with the help of Hon Lik’s invention. Now that the Chinese vaping industry has had a chance to mature, what is the current outlook for the retail e-cigarette market in China? This article will describe some of the recent events in the nation that gave us the e-cigarette. First, though, let’s examine the current outlook for the Chinese factories that produce vaping products and export those products throughout the world.

What Does the Vaping Industry Mean for the Chinese Economy?

To an outside observer, it may appear as though there are just a few manufacturers of vaping products. You’re probably familiar with the big companies like SMOK and Aspire, but companies like those are just the tip of the iceberg. Chinese factories produce about 90 percent of the world’s supply of vape gear. In all, there are around 3,900 factories producing vaping products in China, and those factories employ about 2 million people. Chinese producers of vaping products reported USD $4.8 billion in product sales during 2018 and $6.2 billion during the first three quarters of 2019. Considering the fact that those products were sold at wholesale prices, that’s an enormous volume of business.

Those production figures don’t include the support networks supplying the necessary raw materials to the factories producing vape gear. Vaping product manufacturers have extensive supply chains providing materials such as glass, silicone, integrated circuits, battery cells and more.

Have Many Chinese Smokers Switched to Vaping?

With an adult smoking rate of about one in four, smoking is incredibly common in China. Chinese people consume about 40 percent of the world’s cigarettes. The Chinese tobacco industry is unusual in that the taxes on tobacco sales provide a significant portion of the government’s budget. There are hundreds of millions of smokers in China, and those people collectively provide almost 6 percent of the Chinese government’s yearly tax revenue. The Chinese government depends on tobacco taxes, and that revenue is in addition to what the government earns directly from the sale of the cigarettes themselves. The Chinese tobacco industry is a state-controlled monopoly.

It’s important to keep those facts in mind, because while the Chinese government has begun to implement token tobacco control efforts in recent years, the fact is that the Chinese tobacco industry employs a great many people and produces a massive amount of revenue for the government – revenue earned from citizens who, more often than not, will die before reaching old age in one of the world’s most overpopulated nations.

Despite the e-cigarette’s origin in China, the Chinese vaping market – while large – doesn’t compare to larger vaping markets such as the United States and the United Kingdom. While there are around 300 million smokers in China, there are only about 7-10 million people who vape. As of 2019, yearly retail sales of vaping products in China totalled about USD $2.7 billion. The United States vaping market is roughly 10 times larger.

Government Restrictions Have Stifled the Growth of the Chinese Vaping Industry

In October 2019, the tobacco regulation arm of the Chinese government called for companies in the vaping industry to stop advertising and selling vaping products online. The government ostensibly called for a ban on online sales in order to prevent minors from acquiring e-cigarettes, but it’s easy to regard the ban with more than a bit of scepticism considering the amount of money that the Chinese government takes in from cigarette sales.

Vaping industry experts in China have questioned whether the request to cease online sales constitutes an actual ban and whether a ban would even be enforceable. China doesn’t yet regulate vaping products on the national level. Nevertheless, several of China’s e-cigarette brands did comply with the request. Those who complied included RELX, which as of 2019 commanded a 60-percent share of the Chinese retail e-cigarette market.

At the time of writing, many major Chinese online retailers including Alibaba, Gearbest and Heaven Gifts still offer vaping products through their online stores.

Foreign Attempts to Penetrate the Chinese Vaping Market Have Failed

To date, foreign attempts to penetrate the retail vaping market in China haven’t met with significant success. In September 2019, JUUL attempted to launch an official online store in China through Alibaba only to take the store down shortly after. It’s unknown whether the government’s “ban” of online sales had anything to do with JUUL’s sudden change in direction.

Blu – another western e-cigarette brand with financial backing from Big Tobacco – has never attempted a Chinese launch. As of late 2019, the brand had no plans for Chinese expansion. That’s despite the fact that Blu’s parent company – Imperial Brands – owns Hon Lik’s original e-cigarette patents and employs Lik himself. Lik works for Imperial as a consultant. This situation only serves to underscore the incredible complexity and isolationism of the Chinese tobacco industry.

Counterfeit Vaping Products Are Rampant in China

While most of the 3,900 Chinese factories producing vape gear are building completely legitimate products, there are also some producing clones or knockoffs of well-known vape gear. The factories in Shenzhen are well known for having the ability to build prototypes and turn them into real products – or to analyse existing products and produce virtually exact copies of those products – extremely quickly.

In the beginning, the clone-making segment of the Chinese vaping industry wasn’t a secret. During the early years of vaping, the Chinese factories didn’t produce advanced vape mods; they only produced cigalikes and pen-style vapes. To improve their vaping experiences, hobbyists in the United States and elsewhere created the first mechanical mods. Those devices were often crude, though, as most people didn’t have access to the machines necessary to produce nicer vaping hardware.

When it was evident that there was significant demand for mechanical mods, companies sprung up in the western world to produce those devices. Some of those mechanical mods were truly excellent devices, machined to absolute perfection by hand. The problem, though, was that those products also had prices befitting the amount of labour that went into producing them. A high-end mechanical mod produced by an American or European company in the early-to-mid 2010s might cost well over NZD $800.

With mechanical mods costing so much, several Chinese factories seized upon the opportunity and produced near-perfect clones of the most popular mechanical mods at a fraction of the cost. Vendors selling the clones almost always labelled them as such. Consumers knew that the clones weren’t perfect, but they bought them anyway because they couldn’t afford the extremely high prices of the official products.

The time of cloned mechanical mods came and went, and a seedier side of the Chinese clone-making industry took its place; the clones became outright counterfeits. It’s easy to see numerous examples of this trend simply by searching Alibaba for vape gear. You’ll find JUUL-compatible pods, for instance, that look exactly like the official JUUL pods.

The trend toward manufacturing knockoff products has also extended to Puff Bar, the world’s best-known disposable e-cigarette. Puff Bars are flowing into countries around the world by the millions, and they’re being made by so many factories that no one is even entirely sure who the official maker of Puff Bars is.

The proliferation of fake vaping products coming out of Chinese factories is merely a symptom of the cloning culture that pervades Shenzhen. Other companies – from Apple to Versace and beyond – also remain vigilant in their attempts to rid the market of counterfeit products. While China does have intellectual property laws, getting China’s courts to intervene when the company whose rights are being infringed upon is foreign has never been easy. Until that changes, vaping brands elsewhere in the world will have yet another reason not to even bother attempting to penetrate the Chinese market.

References

  1. https://www.nytimes.com/2019/11/01/business/china-vaping-electronic-cigarettes.html
  2. https://www.reuters.com/article/us-china-ecigarettes/china-calls-for-businesses-to-shut-down-e-cigarette-online-shops-idUSKBN1XB3O2
  3. https://www.scmp.com/news/china/society/article/3039423/online-sales-ban-hits-chinas-vaping-industry-dont-expect-it
  4. https://www.economist.com/business/2020/07/23/a-state-tobacco-monopoly-looms-over-chinas-e-cigarette-makers
  5. https://blogs.bmj.com/tc/2020/05/19/chinas-e-cigarette-manufacturers-facing-uncertain-future/
  6. https://www.tobaccoasia.com/features/china-vaping-industry-slowly-recovering-from-coronavirus/
Jason Artman
Jason Artman is the owner and author of eCig One. A full-time freelance writer for more than a decade, Jason’s clients have included corporations such as Intel and eBay. Jason’s online articles have been viewed hundreds of millions of times. After quitting smoking and switching to vaping in 2010, Jason turned his professional attention to the vaping industry and now works with some of the world’s largest vaping and CBD brands. When writing for his own website, Jason focuses his attention on helping business owners with their vape marketing efforts.

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