China Steps Up Tobacco Control, E-Cigarette Industry Chain Expected to Benefit

It is reported that China is actively formulating the "Regulations on Smoking Control in Public Places" and revising the advertising law to provide sufficient legal basis for the implementation of the "Convention." Wu Hailong, China's permanent representative to the United Nations Office at Geneva and other international organizations in Switzerland, recently revealed at the 10th anniversary celebration of the effectiveness of the "Framework Convention on Tobacco Control" that the Chinese government attaches great importance to safeguarding public health and is committed to fulfilling its obligations under the "Convention." The Chinese government is willing to work with the international community to continue to promote greater progress in tobacco control.


The Director-General of the World Health Organization, Dr. Margaret Chan, stated at the aforementioned celebration that tobacco control is the most important factor in preventing global morbidity and mortality. She urged all parties to quickly ratify the "Protocol to Eliminate Illicit Trade in Tobacco Products" and to expedite its adoption as international law.

In fact, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council issued a notice in 2013 regarding leading cadres taking the lead in banning smoking in public places, and many institutions predicted that this move would create development opportunities for e-cigarettes. Last year, the overseas e-cigarette market experienced a series of shocks, including policy changes, inventory reductions, price declines, and drastic changes in product structure, leading to significant market fluctuations. In the second half of last year, as tobacco giants entered the market, the overseas e-cigarette market showed signs of recovery, with U.S. e-cigarette sales increasing by 14% and sales volume increasing by 44% in September. In terms of market structure, Reynolds Tobacco's VUSE e-cigarette has risen to the top of the industry, accounting for 28.8% of sales; Lorillard's BLU brand has fallen to second place, accounting for 25.4% of sales; and LOGIC ranks third, accounting for 19.3% of sales.

Guojin Securities [0.10% funds research report] believes that e-cigarettes have healthier and more environmentally friendly characteristics, achieving a high degree of mimicry with traditional tobacco, and their prospects are still worth paying attention to. The National Tobacco Monopoly Bureau has established a leading group for new tobacco products, and major tobacco companies are actively developing e-cigarette products. On November 24 of last year, the "Regulations on Smoking Control in Public Places" were submitted for review, and a comprehensive ban on smoking is expected in most public places, providing good promotional opportunities for domestic e-cigarettes.

Shanghai Green New [1.83% funds research report] (002565) signed a consignment contract for mainland and Taiwan sales last July, achieving a significant breakthrough in the social retail channel for e-cigarettes. In terms of domestic e-cigarette sales, the company is still working on its layout with the China Tobacco system (including cooperation with Jilin Tobacco and Zhengzhou Tobacco Research Institute, etc.). Relevant institutions believe that signing the consignment agreement has strengthened Shanghai Green New's social retail channel strength for e-cigarette products in mainland and Taiwan, and is expected to further promote the offline sales of nicotine-containing products and other e-cigarette brand products.

Dongfeng Motor Corporation [2.03% funds research report] (601515) has established a joint venture for e-cigarettes, holding a 40% stake. Data shows that as the e-cigarette market in Europe and the United States grows rapidly, the domestic e-cigarette development prospects are promising, with an initial estimated market space of about 20-35 billion yuan. Dongfeng's aforementioned joint venture is expected to become a major beneficiary due to its channel and technological advantages.