Chinese vaping crackdown threatens to snuff out industry

China seeks tighter scrutiny of electronic cigarettes, with plans to expand regulations on traditional tobacco use to cover vaping products and possibly quintuple their tax rate.

“Enforcement on ID requirements has really gotten strict since last year,” grumbles a worker at a RELX shop in the city of Guangzhou. RELX dominates China’s vaping market with a more than 60% share.

“The government is really cracking down,” the employee says.

The clampdown on an industry that has grown rapidly over the past several years endangers many of the 170,000 companies in the field. Beijing is expected to hammer out the details of these proposed changes soon.

A RELX vape shop in Guangzhou: New York-listed RLX Technology is the Chinese industry leader

Amended rules for tobacco products were announced in March, and China said the same regulations also would apply to e-cigarettes. Manufacturing and sales of vaping products are expected to be managed under a monopoly license system. Local media report that the tax rate for vapes, currently around 13%, may jump to match the 67% for their paper-wrapped counterparts.

China’s e-cigarette market was worth 8.4 billion yuan ($1.3 billion) in 2020, more than eight times the 2015 value, iiMedia Research said. But the prevalence of poor-quality products and a rise in underage vaping prodded regulators to ban online sales in 2018. However, no supervisory framework existed for production and sales.

RLX Technology, the New York-listed company behind RELX, reports no indication of trouble from the prospect of heavy regulation.

“We have not yet experienced a material negative impact on our operating results” since the March announcement, Chief Financial Officer Chao Lu said in a conference call this month.

But investors are leaving China’s biggest vaping company, sinking its shares to less than $10 in recent weeks after they traded around $20 before the government announcement. RLX Technology had made a strong debut on the New York Stock Exchange in January.

Author: Takashi Kawakami, Nikkei Asia

You might also like