1 December 2019
E-cigarette-related deaths in the US and a Beijing directive have China’s manufacturing sector on tenterhooks
Online e-cigarette sales looked like a promising industry for Edwin Wong when he started his venture a year ago. The 34-year-old had studied Shenzhen’s businesses and products since 2012, and saw a sure bet. Soon, he had developed a loyal base of more than 600 repeat customers and business was steady.
Searching Chinese e-commerce platforms such as Taobao or JD.com for “e-cigarettes” – something that would normally yield thousands of options – revealed nothing. It was as if the online shops never existed. Rumours were rampant of at least two suicides among the throngs of small-time sellers whose business model had disappeared.
The day everything changed was 7 November, when Chinese authorities suddenly imposed a de facto ban on e-cigarettes, issuing an order discouraging online sales to protect children from the hazards of smoking. The order came out just before China’s biggest annual online shopping holiday, on the 11th.
But suddenly, everything changed. Overnight his 2.2m yuan (£240,000) investment in a startup, called KiwiPod, disappeared.
“A lot of people have gone into this business who never knew anything about the business before, they just threw money into it. Most just thought it was hot, very profitable, and now they are gone,” he says.
China is the world’s biggest manufacturer and exporter of e-cigarettes, according to the China Electronic Cigarette Chamber of Commerce. In 2018, more than 2 million people worked in the industry, with annual sales worth 33.7bn yuan (£3.7bn) and exports worth 28.7bn yuan (£3.2bn).
In Shenzhen, a city just north of Hong Kong, about 90% of the world’s vaping and e-cigarette devices are designed and manufactured in about 1,000 factories. Thousands more companies form the supply chain throughout Guangdong province and China.
The industry is in damage control after an outbreak of vaping-related respiratory ailments led to at least 39 deaths across the US. The US Center for Disease Control is blaming the additive vitamin E acetate used in some e-liquids, and says most of the cases were associated with smoking of THC oils, the main psychoactive compound in marijuana.
US president Donald Trump is meeting industry and health representatives, amid indications that the final policy in the US would balance health concerns with economic ones. The US market has already shrunk by about a quarter.
Last week, New York City lawmakers voted to ban flavoured e-cigarettes. The measure, which Democratic mayor Bill de Blasio says he supports, bans all e-cigarette and e-liquid flavours except tobacco. It is expected to take effect in July next year.
In Shenzhen, the bigger players have fared better than the smaller sellers, and life for them goes on as normal, for now.
The six-storey Teslacigs factory is easily missed from the road in Shajing, sitting behind a tangle of tropical brush and amidst a cluster of similar dust-stained buildings.
Inside, about 400 workers quietly assemble new pods and other vaping devices in a pristine, dust-free, temperature-controlled environment, a far cry from the dusty world outside.
The factory shows no signs of slowing down. The Chinese market still has potential, managers say, but all eyes are on what the US will do.
“We’re investing in our company, and we’re waiting to see what happens with US regulation,” Xiang Jie, vice general manager of Teslacigs tells the Guardian during a visit to the facility. “Even with the China regulation, it will eventually be the biggest market, and there are other markets growing, in south-east Asia, the Middle East.”
The US is currently the biggest market but also the wild card, those in China’s industry believe. Manufacturers are waiting to see if the US bans flavoured e-cigarettes and what the Food and Drug Administration’s [FDA] policy will be on approving tobacco products (known as a pre-market tobacco product application, or PMTA).
While the FDA says the cost of the review process, which will be determined in May next year, would top out at about $460,000, those in the industry in Shezhen expect it to be much higher.
One manufacturer who did not want to be identified, says it will likely cost his business $10m in set-up costs and business registration, and then about $5m for each individual barcoded item.
‘People knew there was something coming’
Qasim Shah is the co-founder of STIG International, helping build a multi-million dollar vaping business in Shenzhen over the past decade. Originally from Woking, in London’s commuter belt, he ditched his furniture-import business and now has a company that makes 4.5m to 6m devices a month, mostly for the US, Europe and China.
He says the pushback in China has similarities to what is happening in the US, but may take longer to play out.
“I wasn’t surprised at all,” Shah said. “This has been on the table for maybe three or four months. People in the industry knew there was something coming. I didn’t expect an online ban, but the worst scenario would have been to ban e-cigarette sales outright.”
Like most other similar sized brands here, he is waiting to see how things play out. “There’s no regulatory clarity,” Shah says of both the US and China policies. “Everyone here knows the government is quite tough and what they say you have to abide by,” Shah said. “You get on with it and there are other avenues for the market.”
‘A trend that can’t be stopped’
Bruce Du works as a distributor for about 10 brands of e-cigarettes. He says the mood swings in the industry are a result of Chinese and US policy, trade frictions between the two countries, and the influence of China’s tobacco industry.
“I’ve thought of getting out of the business because of all the problems [on the US side],” he says.
“In my opinion, China Tobacco [the state-run monopoly that manages sales and taxes on cigarettes] is trying to push our industry down because if we grow at a faster pace, the market and profit for tobacco will go down,” Du said.
But Ao Weinuo, head of the Shenzhen branch of the China Electronic Cigarette Chamber of Commerce is upbeat. “The electronic cigarette industry has raised great concern in the world, especially in the United States and China,” Ao said. “There’s a lot of negative press, but we think [e-cigarette use] is a trend that can’t be stopped. As long as we solve the problems of taxation, product quality and safety, and measures to protect minors, the industry will have a bright future.”