It was 2001 when Chinese pharmacist Han Li was trying to give up smoking. He tried nicotine skin patches but he missed the sudden chemical hit he got from having a cigarette. So he began work on a device that would provide not only that but other sensations connected with smoking, namely having something to hold and exhaling the vapour.
Two years on the e-cigarette was born. “Some in China have called it the fifth invention – after navigation, gunpowder, printing and paper. But that’s too much,” he told the Spectator modestly in 2015.
Initially Han’s invention didn’t really take off in China. The country’s 300 million smokers largely stuck with the traditional paper-and-tobacco type of cigarettes. Instead China became a manufacturer of vaping equipment as foreign smokers began making the switch. Today China produces over 90% of the world’s e-cigarettes, with the vast bulk made in Shenzhen.
However, as foreign companies such as San Francisco-based Juul began turning huge profits with their sleek, multi-flavoured vaping products, Chinese investors began seeing the potential in the local market – especially amongst young, hip urbanites.
In the last few months alone several big names have announced their involvement in the sector, including Zhu Xiaomu, a former executive at tech company Smartisan, who left to start an e-cigarette brand called Flow. Cai Yuedong, a weibo celebrity, also launched a brand in January called YOOZ.
In fact, the sector has become a target for private equity firms after attracting at least Rmb580 million ($86 million) in investment last year, newspaper CBN reported.
But all this activity has attracted more official attention. Last week e-cigarettes featured on CCTV’s annual consumer rights programme for the first time with the show claiming that Chinese vaping oils contained up to 60 times more nicotine than their labels suggested.
It also said that vapour from the eight unnamed brands it tested contained levels of formaldehyde that exceeded government air quality regulations.
“The world paid a heavy price for tobacco and now e-cigarettes are infiltrating our lives through a similar path” the state broadcaster warned.
Part of the issue is that the e-cigarette industry has been largely unregulated. E-cigarettes are classified as electronic goods (not medical devices or tobacco-related products as they are in other countries) and there is minimal legislation on their sale, use or manufacture.
An unregulated industry with a huge pool of customers equals massive potential for growth. Some seven million Chinese are currently believed to vape.
Yet CCTV’s criticism on its widely watched show seems to signal that regulation is coming. Indeed after the show went out, several of China’s major online shopping portals including Tmall and JD.com blocked searches for “e-cigarettes” (most unblocked the term a day later without any explanation).
“CCTVs programme should be regarded as a warning to the e-cigarette industry. The practitioners can take this opportunity to think about the development status and direction of the industry,” commented China National Radio after the consumer show.
36kr, a news website, said CCTVs decision not to name any of the e-cigarette start-ups showed it wasn’t trying to bash any particular vaping brand. But Guangming Daily added that “an emerging industry like e-cigarettes should be brought under systematic supervision as soon as possible”.
Some Chinese cities forbid vaping in public places as part of their smoking bans and the government has made it clear that e-cigarettes should not be sold to minors.
But the central government hasn’t embraced e-cigarettes as a method of weaning smokers off traditional cigarettes – as some Western governments have done. Neither has it taken the view that e-cigarettes present a public health risk, as has happened in places like India. Some observers say the country’s leaders didn’t trumpet Han Li’s invention because it poses a challenge to traditional tobacco – which provides 6% of government tax revenues (see WiC434).
© ChinTell Ltd. All rights reserved.
Exclusively sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.