Tougher Vape Regulation Is Coming as China Tobacco Ties Emerge

On March 22, the Ministry of Industry and Information Technology publicly solicited opinions on amending the "Implementation Regulations of the Tobacco Monopoly Law of the People's Republic of China," proposing to add a clause in the appendix as Article 65: "New tobacco products such as e-cigarettes shall be implemented in accordance with the relevant provisions regarding cigarettes in this regulation."

This means that e-cigarettes and other new tobacco products are set to be formally included under specialized legal regulation for the first time, and in the future, they may follow the same regulatory policies as cigarettes, leading to significant upheaval and restructuring in the entire e-cigarette industry.

In the future, e-cigarettes are likely to be incorporated into the tobacco monopoly system, managing e-cigarettes from three dimensions: raw materials, production, and sales channels. The era of low barriers and disorderly operations will come to an end.

As a result, the release of the draft for public opinion has thrown the e-cigarette industry into turmoil and panic. However, industry insiders generally believe that in the long run, standardized regulation and clear standards will be extremely beneficial for the comprehensive and healthy development of the e-cigarette industry.

Recently, media reports have drawn attention to several e-cigarette industry chain companies with stakes from the China National Tobacco Corporation. According to data from Qichacha, an investment fund under China Tobacco has invested in the domestic e-liquid company Hengxin Group as of January this year, with Kunming Shuangwei Technology Co., Ltd., a shareholder of Hengxin's operating company Hengxin Yongji, holding a 4.997% stake. After penetrating the equity, it was discovered that Shuangwei Technology has ties to the China National Tobacco Corporation.
 
Additionally, according to Qichacha data, the shareholder composition of the well-known e-cigarette manufacturer Zhuolineng includes Xiangwei Tobacco Chain (Beijing) Technology Co., Ltd., which, after equity penetration, reveals that it has shares from the China National Tobacco Corporation and Zhejiang Tobacco.
 
In the context of impending strict regulation of e-cigarettes, the shareholder backgrounds of these two companies have sparked industry attention and discussion.

Coincidentally, while researching the layout of the China National Tobacco Corporation in the industry chain, when looking into the shareholder composition of Hengxin and Zhuolineng, an industry insider revealed that another newly created e-cigarette brand, COEE, which is backed by a company under China Tobacco, has recently begun intensive discussions for channel cooperation and is set to launch e-cigarette products in April.
 
Currently, the information disclosed online is very limited. Through Qichacha, I learned that on January 4, 2021, the parent company of the COEE brand, Shenzhen Xingguang Diandian Technology Co., Ltd., was established in Shenzhen, with founding shareholders including Zhejiang Yiwei Tobacco Chain Technology Co., Ltd., holding a 20% stake.
 
Following the equity inquiry of Zhejiang Yiwei Tobacco Chain, it leads to Zhejiang Xiangyi Rongmei Technology Co., Ltd., which is further backed by Zhongwei Capital. Zhongwei Capital is controlled by China Shuangwei Investment and Zhejiang Tobacco Company, while China Shuangwei Investment is a 100% controlled investment enterprise of the China National Tobacco Corporation. Thus, it appears that another e-cigarette brand backed by the China National Tobacco Corporation is about to emerge.
 
The three companies backed by China Tobacco include Hengxin, an e-liquid company, Zhuolineng, an e-cigarette manufacturer, and COEE, an e-cigarette brand. This indicates that China Tobacco has already laid out its strategy across the entire e-cigarette industry chain.