Vaping’s upsurge worries Chinese

Domestic market getting pressured

Vaping has surged in China, drawing money from domestic and Western investors alike. In a country with nearly as many smokers as the entire United States population, the growth potential seemed limitless.

“This,” said Frank Wang, an aspiring entrepreneur who wanted to open his own vaping shop, “is where you can make money now.” Perhaps not anymore. China has joined the United States and other governments in putting new pressure on vaping. Regulators have banned online sales of vaping products, and China’s propaganda outlets have heaped on scrutiny, citing the potential health effects. The government is considering banning vaping in public places.

Beijing’s crackdown threatens an almost exclusively Chinese industry that had been counting on the country as a haven. Ninety percent of the world’s e-cigarettes are made in China, and most of them are produced in Shenzhen, a southern city that borders Hong Kong. Some of the nation’s top e-cigarette brands have

A 2018 tobacco survey commissioned by China’s Center for Disease Control found that people 15 to 24 years old were the most avid vapers, with most buying their devices online.

taken hundreds of millions of dollars in venture capital funding from high-profile names like Sequoia China, IDG Capital and Matrix Partners China. The firms did not respond to requests for comment.

The new scrutiny adds to the troubles for Chinese ecigarette exporters, already hammered by the vapingrelated health crisis in the United States.

While exporters have long dominated China’s e-cigarette industry, the domestic market took off only about three years ago. Of the 10 million ecigarette users in China, most are young people who vape sleek, brightly colored devices with flavors like chilled strawberry and orange soda.

Euromonitor, the global market research consultancy, said China’s e-cigarette market was worth $750.4 million in 2018, nearly triple the 2014 value. China has more than 300 million smokers, out of a population of nearly 1.4 billion. In the United States, 10.8 million adults vape.

Juul Labs, which is under fire in the United States for marketing its e-cigarettes to children, wanted to cash in, too. But just days after starting business in China, its products were removed from Alibaba and JD.com, two of the biggest e-commerce platforms. Neither the government nor the company gave any explanation.

Concerns are mounting about the hazards of vaping among the young, prompting many Chinese to call for regulations. A 2018 tobacco survey commissioned by China’s Center for Disease Control found that people 15 to 24 years old were the most avid vapers, with most buying their devices online.

In recent weeks, state media outlets have kept up a drumbeat of negative coverage of the industry. On Nov. 4, the most-read article on the website of People’s Daily, the Communist Party’s official newspaper, noted that most e-cigarette companies continued selling their products online despite the ban. The next day, China’s state broadcaster, China Central Television, showed Beijing officials summoning companies to comply with the ban. The day after that, e-cigarettes were no longer available on Alibaba’s Taobao and JD.com, two of China’s most popular e-commerce platforms.

For years, the Chinese government allowed the lucrative e-cigarette industry to thrive with no supervision. There was never any consensus on whether e-cigarettes should be classified as tobacco,

health or electronics products and which agency should regulate them. Part of the problem, too, is that China’s top tobacco authority is both a regulator and producer of cigarettes.

In an industry with low barriers to entry, manufacturers took advantage of this void. According to Tianyancha, a corporate database in China, the country has more than 9,500 e-cigarette companies.

Many of these brands have haphazard quality controls that have resulted in knockoffs, unsafe ingredients and vape liquid leakage, but the authorities have rarely policed these companies. In March, China Central Television said eight e-cigarette companies made vaping oils with nicotine levels that were higher than what the package stated.

Alarmed by these reports, the government is set to force producers to comply with standards on ingredients and manufacturing, according to a draft viewed by The New York Times.

Once the “national standard” is enacted, companies would be required to provide details on the number and dosage of ingredients, put warnings on packages, and devise ways of testing e-cigarettes to ensure compliance.

The process would increase production costs, industry experts say, and is likely to put many small e-cigarette exporters out of business.

But Ou Junbiao, head of the Electronic Cigarette Industry Committee of China trade group, said he welcomed the rules because they would give him clear guidelines. He said that previously many companies like his never dared to sell in China for fear of running afoul of the government.

“Once the national standard comes out, I can follow its targets and make big investments,” said Ou, a former factory worker and owner of Sigelei, one of China’s top ecigarette exporters to the United States, in his office in Shenzhen. “I won’t have to worry that something will happen, but now I don’t know which day the sword would fall.”