Vaping vs. China Tobacco

We all know that e-cigarettes and tobacco are in a competitive relationship, with e-cigarettes continuously encroaching on the tobacco market through their advantages.

According to the "2020 Report on the Harm of Smoking in China," the number of smokers in China exceeds 300 million, with a smoking rate of 26.6% among individuals aged 15 and above, and the male smoking rate reaching 50.5%.

According to data from iiMedia Consulting, the proportion of e-cigarette consumers in China is 0.6% of the total number of smokers, nearly 18 million people. Even with such a low penetration rate, the e-cigarette market continues to expand. Although it is currently managed by the tobacco bureau, it is categorized separately, and a storm is bound to arise! The analysis is as follows:

1、Annual Tax Revenue from Chinese Tobacco:

In 2020, Chinese tobacco achieved a total industrial and commercial tax revenue of 1.2803 trillion yuan (approximately 196.26 billion USD), a year-on-year increase of 6.2%, with a total fiscal contribution of 1.2037 trillion yuan (approximately 184.52 billion USD), a year-on-year increase of 2.3%. Both the total tax revenue and the fiscal contribution set historical records.
The profitability of China National Tobacco can be compared to that of the four major banks, as shown in the chart from 2018:

In terms of e-cigarettes, China National Tobacco is clearly lagging behind Smoore and RELX, and the number of RELX e-cigarette outlets is increasing. It is important to note that e-cigarettes have a substitution effect on traditional tobacco, especially among the younger generation who enjoy trying new things. Currently, the penetration rate in the domestic market is still low, but if these individuals switch to e-cigarettes instead of traditional cigarettes, what impact will that have on tax revenue?

2、News and Common Sense:

Xinhua News Agency places great importance on the harm of e-cigarettes to youth. First, they shut down online purchasing channels, and then they began to pay more attention to offline sales. If you pay attention to your surroundings, it is not just RELX outlets; many convenience stores also conveniently sell e-cigarettes. I am not sure if those store clerks require buyers to present ID, and even if they do, it is probably not difficult to find someone to buy on your behalf.

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Let’s look at the actions of the Tobacco General Company and local tobacco monopoly bureaus:

1. Special rectification of the e-cigarette market;

2. Bidding for heated non-combustion cigarette equipment.

E-cigarettes have a strong market demand and will definitely develop, but in China, its future has only one path: to be managed by the Tobacco Monopoly Bureau. Whether it is vaporization or tobacco sticks, the core must be controlled through exclusive sales channels and taxed according to cigarette tax rates to ensure stable annual tax revenue. If it directly competes with China National Tobacco, the outcome may not be good. The most likely development is still to have a cooperative relationship with China National Tobacco, focusing on supporting businesses: producing relatively low-value tobacco labels and tobacco accessories.

In summary, author on Xueqiu: Zhou Buyizhi

Conclusion: Based on the above data comparison and policy trends, we all have a scale in our hearts. The future of e-cigarettes is not so optimistic, mainly depending on the upcoming policies and the actions of China National Tobacco, whether they are willing to share this market (excluding HNB) with brand manufacturers, or if they will continue to allow the market to develop freely while only regulating China National Tobacco. Perhaps that is too optimistic!