Wave of e-cigarette expansion overseas: stronger regulation supports orderly industry growth, China
According to a report from China National Radio on May 6, the National Bureau of Statistics recently announced that foreign trade in China maintained growth in the first quarter, with strong performance in goods exports, which increased by 8.4% year-on-year. In March, the total import and export value reached 37,094 billion yuan, a year-on-year increase of 15.5%, with exports amounting to 21,552 billion yuan, up 23.4%, exceeding market expectations. Fu Linghui, spokesperson for the National Bureau of Statistics and director of the National Economic Comprehensive Statistics Department, stated that the next phase of China's stable foreign trade policy will continue to show results.
Against the backdrop of China's economic recovery and rapid growth in exports, how have Chinese e-cigarette manufacturers, which have accelerated their overseas expansion since the implementation of new management regulations last year, developed? What are their expectations for the overseas market for Chinese e-cigarettes? Recently, reporters from China National Radio, in collaboration with the Global Vapor Technology Think Tank, visited relevant enterprises to conduct research on the situation.
China is the world's largest e-cigarette exporter, with companies actively seizing overseas markets
China is the world's largest manufacturer and exporter of e-cigarettes. In recent years, China's e-cigarette exports have continued to increase. According to the "2022 E-Cigarette Industry Export Blue Book" jointly produced by the Electronic Cigarette Professional Committee of the China Electronic Commerce Association and Shenzhen Two Above Technology Co., Ltd., China's total e-cigarette export value is expected to reach 186.7 billion yuan in 2022, a year-on-year increase of 35%. In 2020, the export scale reached 49.4 billion yuan, a year-on-year increase of 180%; in 2021, the export scale reached 138.3 billion yuan, also a year-on-year increase of 180%.
The "Blue Book" also shows that there are currently over 1,500 e-cigarette manufacturing and branding companies in China, with more than 70% of them primarily focused on exporting products overseas. There are nearly 100,000 companies in the e-cigarette supply chain and related services. Among them, about 13,000 companies are directly related to the industry, while over 82,000 are indirectly related. E-cigarette patent applications have surged in the past three years, with more than 5,000 applications each year from 2019 to 2021. According to Two Above, in 2022, the total number of newly authorized patents related to e-cigarettes (including heated tobacco products) reached 6,248.
Currently, China's main e-cigarette export destinations include the United States, the European Union, the United Kingdom, Russia, and ASEAN countries. During the visits, reporters learned that almost all e-cigarette manufacturers are actively adapting to local regulatory policies and consumer habits to seize overseas markets.
Miracle Technology (Shenzhen) Co., Ltd. is a leading e-cigarette company in Shenzhen, and its senior vice president, Jiang Hui, told reporters that e-cigarettes, as a new business model, have formed an industrial pattern of "Made in China, Consumed Worldwide," and the entire e-cigarette industry is continuously transforming towards standardization, normalization, and internationalization.
Stronger regulation benefits orderly industry development; protecting minors has become a global consensus
The strengthening of regulations is seen as beneficial for the orderly development of the entire e-cigarette industry, which is a consensus among the interviewed e-cigarette manufacturers. All interviewed companies stated that since the implementation of the "E-Cigarette Management Measures" (referred to as the "Measures") on May 1, 2022, they have completed license applications and export registrations in accordance with the requirements of the management "Measures" and have strictly conducted production and business activities in accordance with regulatory requirements.
Globally, the tightening of regulations seems to be an overall trend in the e-cigarette market. According to the latest "Global E-Cigarette Regulatory Monthly Report" released by Two Above, over 170 regulatory events occurred globally in March 2023. Guo Xiaoyu, co-founder and COO of Shenzhen Two Above Technology Co., Ltd., stated in an interview that the global e-cigarette market is entering a period of regulatory transformation, with various countries adjusting and introducing e-cigarette regulatory policies. Chinese e-cigarette brands need to adapt to global policy changes. During the visits, many companies expressed that the greatest uncertainty in the overseas e-cigarette market lies in local regulatory policies.
CMO Bai Feng of Shenzhen Youweier Technology Co., Ltd. told reporters that in the past, as the market expanded and the industry developed rapidly, some e-cigarette manufacturers operated in a "rough" manner, leading to frequent incidents of counterfeit and inferior products. To curb such phenomena, countries around the world have begun to impose requirements for industry standardization and have formulated and issued a series of regulatory policies and access regulations. For example, exporting to the United States, the European Union, the United Kingdom, Canada, South Korea, the UAE, Malaysia, and other countries and regions requires providing various certifications such as registration certificates and filing certificates.
Bai Feng also mentioned that "going overseas requires adapting to different regulatory policies in various regions, as well as dealing with channel differences, cultural differences, and consumer habit differences. Global regulatory policies for e-cigarettes vary, and the market and consumer demand for e-cigarette products in different countries have certain differences, which requires manufacturers to take corresponding measures and conduct research based on local specific situations. From research and development to product packaging, logistics, and sales promotion, every link must be carefully considered, strictly adhering to local laws and cultural differences."
Yunnan Yunshuo Technology Co., Ltd. is a high-tech enterprise engaged in the research, production, and sales of flavoring agents. The company's president, Hu Xin, believes that currently, not only in China but globally, the regulation of e-cigarettes is gradually strengthening. For Chinese e-cigarettes to go overseas, meeting local legal and regulatory requirements is the minimum standard and a mechanism for elimination. Through regulation, thresholds are raised, such as restrictions on nicotine, requirements for flavoring agents, and bans or limitations on certain substances, all of which are protections for consumers.
Reporters noted that countries are strengthening protections for minors. To actively cooperate with local regulatory policies, Chinese e-cigarette manufacturers have adopted similar practices. This mainly includes prominently marking relevant warning messages on product packaging, official websites, and retail stores, emphasizing the importance of protecting minors. Additionally, they are innovating in product technology, such as adding child locks in device designs to prevent children from misusing or consuming e-cigarettes. Furthermore, they have explicitly prohibited the sale of e-cigarettes to minors in their channel and sales management, stipulating corresponding breach of contract responsibilities and penalties, which will be enforced upon discovery. Senior vice president Jiang Hui of Miracle Technology told reporters that in December last year, Miracle Technology launched the "Lighthouse Plan" aimed at taking responsibility for protecting minors and advocating the concept of "prohibiting minors from using e-cigarette products" globally. Moreover, the German market has been selected as the pilot market for the company's first child lock products, which has received positive feedback.
Shenzhen continues to maintain its position as the largest e-cigarette export city in the country, with significant advantages in the industrial chain
In the e-cigarette industry, a popular saying is, "The global e-cigarette market looks to China, and Chinese e-cigarettes look to Shenzhen, while Shenzhen e-cigarettes look to Bao'an."
Shenzhen is a major hub for e-cigarette production and exports globally. According to statistics from Shenzhen Customs, in the first two months of this year, Shenzhen's e-cigarette exports grew by nearly 40%. In 2022, Shenzhen exported e-cigarettes worth 46.09 billion yuan, accounting for 68.3% of the national export total. In the first two months of this year, Shenzhen's e-cigarette exports reached 7.1 billion yuan, a year-on-year increase of 38.9%, accounting for 66.9% of the national e-cigarette export total, continuing to maintain its position as the largest e-cigarette export city in the country.
At the same time, Shenzhen Customs stated that Shenzhen's e-cigarette exports have two main characteristics: first, the vast majority are exported by private enterprises through general trade. In the first two months, private enterprises in Shenzhen exported 6.09 billion yuan, an increase of 42%, accounting for 85.8% of the total e-cigarette exports from Shenzhen during the same period. During the same period, exports through general trade amounted to 6.53 billion yuan, an increase of 40.5%, accounting for 92.1%. Second, the main markets are in Europe and the United States, with a decreasing proportion of exports to the United States. In the first two months, Shenzhen's exports to the United States amounted to 2.29 billion yuan, a decrease of 20.1%, accounting for 32.3% of Shenzhen's e-cigarette export total during the same period, still the largest market for Shenzhen's e-cigarette exports, but down 5.8 percentage points compared to 2022. During the same period, exports to the EU, the UK, and Russia increased by 1.9 times, 90%, and 2.7 times, respectively, accounting for a total of 40.9%. Additionally, exports to ASEAN reached 420 million yuan, an increase of 1.3 times, accounting for 6%.
In the view of Jiang Hui, senior vice president of Miracle Technology, the first-time release of e-cigarette export data by Shenzhen Customs has given a boost to companies in this industry looking to expand overseas. He stated that Shenzhen has formed a complete industrial chain layout from upstream raw material supply, midstream product design and manufacturing, to downstream global market sales.
According to Zhan Xingyu, general manager of Shenzhen Haohan Yangtian Technology Co., Ltd., although some countries and regions have relatively low labor costs, the production efficiency of workers is also low. At the same time, Shenzhen has a complete e-cigarette supply chain, which is difficult to establish abroad. Without a supply chain, reliance on domestic transportation will increase overall production costs. From a research and development perspective, if the R&D center is still in China, it will be challenging for each product to closely coordinate with local production teams, affecting smooth mass production. Moving R&D overseas is even more difficult, as China's talent reserves and core technologies are hard to replace.
During the process of expanding overseas, e-cigarette companies inevitably encounter difficulties and bottlenecks. According to Bai Feng, CMO of Youweier, "The e-cigarette industry has previously faced logistics bottlenecks. With the efficient coordination of the Bao'an District government and the e-cigarette professional committee, Shenzhen Airport and relevant testing units have developed the 'E-Cigarette Product List Enterprise Recognition Standards' and 'Differentiated Security Inspection Operation Guidelines for Air Freight Exports,' effectively helping us solve logistics issues and enabling companies to set sail for overseas expansion."
In light of the bright overall data for overseas expansion in recent years, what are the future expectations of the interviewed e-cigarette companies?
Bai Feng, CMO of Youweier, stated that market research institutions predict that the global e-cigarette market will grow at a rate of 17% per year, potentially reaching a market size of approximately $55 billion by 2024.
Hu Xin, president of Yunshuo Technology, believes that in the future, global brands may emerge in the e-cigarette field. In his view, brands must have pricing power and brand premium, and consumers are willing to pay for brand recognition, image, and tone. Currently, there are very few truly significant e-cigarette brands, but China has a significant advantage in e-cigarette manufacturing and exports, presenting a great opportunity to create global brands in the future.
Jiang Hui, senior vice president of Miracle Technology, stated that the overseas expansion of e-cigarettes is a test of the standardized development and continuous progress of the industry. Currently, various countries are increasingly standardizing laws and regulations related to e-cigarettes, and companies need to adapt to regulatory changes, making compliance development a fundamental principle. They must also pay more attention to investment in R&D and corporate social responsibility, such as continuously improving product quality and exploring technologies for protecting minors and environmental recycling, which will also drive the entire industry towards more compliant and sustainable development.
