After months of deliberations that began in March, Beijing has taken action against its sprawling $1.3 billion e-cigarette industry, dealing a major blow to China’s biggest vape maker: U.S.-listed RELX Technology.
- In late November, the State Council amended a law so that e-cigarettes are treated like conventional tobacco products: retailers must obtain special permits, and the industry has been placed under the supervision of China’s tobacco regulator.
- Last Thursday, the tobacco regulator made its move: aside from meeting various health standards, all e-cig retailers will now be required to sell through a transaction management platform run by the regulator.
- State-controlled licensing was one of the worst possible scenarios for RELX: “In the traditional tobacco industry, cigarette sales volume and prices are all set by China Tobacco,” an investor told Forbes. “If this is applied to e-cigarettes, then that will remove all the value of the e-cigarette companies.”
The context: In 2019, a spate of Chinese e-cigarette makers appeared on the scene following the explosive rise of Juul in the United States. The most successful was RELX Technology: it raised $1.4 billion in an IPO in January and reached a valuation of $35 billion.
- The regulations are not a surprise given the context of the common prosperity drive and its emphasis on the mental and physical health of young people.
- Like Juul, RELX was popular among young Chinese, with its colorful vape pens and flavors such as tangy purple grape and watermelon mint.
- Health concerns have long dogged the industry in both the U.S. and China: In 2019, Beijing banned online sales and advertising of e-cigarettes amid global health concerns sparked by multiple investigations of Juul’s products in the United States.
However: State-owned China Tobacco, which operates directly under the tobacco regulator, is a monopoly and an indispensable funding source for Beijing. The company made $189 billion in revenues in 2019, and generates about $30 billion a year in taxes. The state’s move may protect children’s lungs, but it also protects government coffers.
Author: Chang Che, SupChina