China’s vape industry has been hit with another round of legislation. The new measures build upon a decision to move the industry under the purview of the State Tobacco Monopoly Administration and regulate e-cigarettes/vape products as tobacco products, which will put significant restraints on the industry catering to the domestic market. We discuss the finalized regulatory measures below, implemented from May 1, 2022. Technical standards approved by China’s market took effect on October 1, 2022. In addition, e-cigarettes will be subject to a consumption tax from November 1, 2022.
Regulating China’s vape industry
On November 26, 2021, China’s State Council announced it had amended the Regulations for the Implementation of the Tobacco Monopoly Law of China to include e-cigarettes and related products, stipulating that they are subject to the same regulations as tobacco products. This means vapes will now be subject to the same rules for licensing, production, sales, import/export, and taxation, among other rules, as traditional tobacco products.
Then on December 2, 2021, China’s State Tobacco Monopoly Administration (STMA) released a draft of the Administrative Measures for E-Cigarettes (the ‘administrative measures’)’), a new set of administrative measures for governing the emerging China vape industry. These measures were later amended, and a final version was released on March 11, 2022. The administrative measures came into effect on May 1, 2022. However, as the “Electronic Cigarette” Mandatory National Standards [Standards number GB 41700-2022] (the ‘national e-cigarette standards”) – that were released shortly after – only came into effect on October 1, 2022, a transition period for companies to shift their business models to comply with the regulations was implemented from May 1 to September 30, 2022.
The administrative measures were based on the following Chinese laws governing the tobacco industries and the protection of minors: The Tobacco Monopoly Law of the People’s Republic of China, the Law of the People’s Republic of China on the Protection of Minors, and the Regulations for the Implementation of the Tobacco Monopoly Law of the People’s Republic of China. The administrative measures stipulate regulations for the production, sale, marketing, and import and export of e-cigarette products and nicotine for e-cigarettes. Perhaps one of the most significant rulings is the requirement for companies to process all transactions through an ‘e-cigarette transaction platform’, overseen by the STMA.
Overview of China’s vape industry
The China vape or e-cigarette industry has exploded in growth over the past couple of years, with early movers benefiting from unfettered access to the largest population of smokers in the world. The industry also has massive growth potential.
According to a report from Chinese data analysis, the penetration rate of e-cigarettes reached just 1.5 percent in 2021. This report notes that this is far behind countries such as the U.S., the U.K., and Japan, all of which have penetration rates above 30 percent.
There is therefore significant room for expansion if companies are able to convince more of China’s 300 million or more smokers to wean off traditional tobacco.
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