(Written by Sui-Lee Wee and Elsie Chen)
Models in tight dresses and high heels lounged in a yellow inflatable pool filled with plush toys and vaping equipment. Enthusiastic vapers lined up for free pens and pods, as clouds of mango, mint and rose mingled with the electronic dance music in the air.
Attendees of the Shanghai eCig Expo had a lot to celebrate. Vaping has surged in China, drawing money from domestic and Western investors alike. In a country with nearly as many smokers as the entire United States population, the growth potential seemed limitless.
“This,” said Frank Wang, an aspiring entrepreneur who wanted to open his own vaping shop, “is where you can make money now.”
Perhaps not anymore.
China has joined the United States and other governments in putting new pressure on vaping. Regulators have banned online sales of vaping products, and China’s major propaganda outlets have heaped on scrutiny, citing the potential health effects. The government is considering banning vaping in public places.
Beijing’s crackdown threatens an almost exclusively Chinese industry that had been counting on the country as a haven. Ninety percent of the world’s e-cigarettes are made in China, and most of them are produced in Shenzhen, a southern city that borders Hong Kong. Some of the nation’s top e-cigarette brands, including RELX, FLOW and Yooz, have taken hundreds of millions of dollars in venture capital funding from high-profile names like Sequoia China, IDG Capital and Matrix Partners China. The firms did not respond to requests for comment.
The new scrutiny adds to the troubles for Chinese e-cigarette exporters, already hammered by the vaping-related health crisis in the United States that has sickened at least 2,200 people and killed 47.
While exporters have long dominated China’s e-cigarette industry, the domestic market took off only about three years ago. Of the 10 million e-cigarette users in China, most are young people who vape sleek, brightly colored devices with flavors like chilled strawberry and orange soda.
Euromonitor, the global market research consultancy, said China’s e-cigarette market was worth $750.4 million in 2018, nearly triple the 2014 value. China has more than 300 million smokers, out of a population of nearly 1.4 billion. In the United States, 10.8 million adults vape.
Juul Labs, which is under fire in the United States for marketing its e-cigarettes to teenagers and children, wanted to cash in, too. But just days after starting business in China, its products were removed from Alibaba and JD.com, two of the biggest e-commerce platforms. Neither the government nor the company gave any explanation. Juul had paid to be at the e-cigarette fair in Shanghai starting in late October, but withdrew at the last minute because of the crisis in the United States, according to Li Wangfeng, project director of the expo.
Concerns are mounting about the hazards of vaping among the young, prompting many Chinese to call for regulations. A 2018 tobacco survey commissioned by China’s Center for Disease Control found that people 15 to 24 years old were the most avid vapers, with most buying their devices online.
In recent weeks, the state news media has kept up its drumbeat of negative coverage of the industry. On Nov. 4, the most-read article on the website of People’s Daily, the Communist Party’s official newspaper, noted that most e-cigarette companies continued selling their products online despite the ban. The next day, China’s state broadcaster, China Central Television, showed Beijing officials summoning companies to comply with the ban. The day after that, e-cigarettes were no longer available on Alibaba’s Taobao and JD.com, two of China’s most popular e-commerce platforms.
For years, the Chinese government allowed the lucrative e-cigarette industry to thrive with no supervision. There was never any consensus on whether e-cigarettes should be classified as tobacco, health or electronics products and which agency should regulate them. Part of the problem, too, is that China’s top tobacco authority is both a regulator and producer of cigarettes.
In an industry with low barriers to entry, manufacturers took advantage of this void. According to Tianyancha, a corporate database in China, the country has more than 9,500 e-cigarette companies.
Many of these brands have haphazard quality controls that have resulted in knockoffs, unsafe ingredients and vape liquid leakage, but the authorities have rarely policed these companies. In March, CCTV said eight e-cigarette companies made vaping oils with nicotine levels that were higher than what the package stated.
Alarmed by these reports, the government is set to force producers to comply with standards on ingredients and manufacturing, according to a draft viewed by The New York Times.
Once the “national standard” is enacted, companies would be required to provide details on the number and dosage of ingredients, put warnings on packages, and devise ways of testing e-cigarettes to ensure compliance.
The process would increase production costs, industry experts say, and is likely to put many small e-cigarette exporters out of business.
But Ou Junbiao, head of the Electronic Cigarette Industry Committee of China trade group, said he welcomed the rules because they would give him clear guidelines. He said that previously many companies like his never dared to sell in China for fear of running afoul of the government.
“Once the national standard comes out, I can follow its targets and make big investments,” said Ou, a former factory worker and owner of Sigelei, one of China’s top e-cigarette exporters to the United States, in his office in Shenzhen. “I won’t have to worry that something will happen, but now I don’t know which day the sword would fall.”
E-cigarette executives in China were unanimous in attributing the vaping-related illnesses in the United States to the use of THC, the psychoactive ingredient in marijuana, and vitamin E acetate. The majority of the American victims had vaped THC, but some say only nicotine was involved.
In Shenzhen, several vaping manufacturers have laid off workers, according to two labor recruiters.
At the Shanghai expo, Chen Lin, a sales manager for a company that produces parts of e-cigarette atomizers, said his company’s sales fell 80% in the past month.
“We basically have no orders coming in this month after what happened in the United States,” said Chen, who came to the expo to look for business partners.
Within China, RELX has become the dominant seller of e-cigarettes and controls 44.4% of the market for closed vaping systems, e-cigarette pens that come filled, according to data from Euromonitor. It has nearly $286 million in financing, according to its founder, Kate Wang, from major venture capital firms like Sequoia China.
Wang started RELX in 2017, after testing 20 e-cigarettes in the Chinese market and discovering they did not meet her expectations. She said she was motivated to help her two-pack-a-day father quit smoking.
Jiang Xingtao, whose title is “director of flavors” at RELX, said that while vaping was safer than smoking tobacco, the jury was still out on whether it is definitively safe.
He is collecting data in RELX’s lab in Shenzhen to determine the risks and wants to run clinical trials, singling out the flavoring ingredients.
“We can guarantee that they are safe to be consumed through the stomachs, but is it safe enough to be absorbed through the lungs?” Jiang said. “To be honest, in this respect, neither we nor the industry has evidence that is particularly solid.”
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