/April 22, China/ Under the joint cooperation of Yi Yanling, member of the Party Group of Bao’an District Bureau of Industry and Information Technology and director of the Enterprise Service Center, and Wang Suichu, Deputy General Manager of Shenzhen Airport (Group) Co., Ltd., Shenzhen Airport will speed up the whitelisting of electronic cigarette products. They’ll establish and promote the simplification of the export and transportation inspection process of e-cigarette products,increase the air transportation capacity, and provide convenient conditions for the export of e-cigarette products.
“Transfer of electronic cigarette products through Hong Kong airport” is about to become history
Shenzhen is the center of the global e-cigarette industry, carrying 90% of the world’s e-cigarette supply, and 40% of the exported e-cigarette products are carried by the Hong Kong Airport for air transportation. Regulations, starting from May 1, electronic cigarettes will no longer be allowed to transfer through Hong Kong Airport. When Hong Kong withdraws from the air transportation of electronic cigarette products, Shanghai Pudong Airport and Zhengzhou Airport have already occupied a place in the air transportation of electronic cigarette products, and Shenzhen Airport, which is located in the center of the global electronic cigarette industry, will also implement a number of measures to facilitate the e-cigarette export.
The first discussion has achieved initial results
On the afternoon of April 12, under the leadership of Yi Yanling, member of the Party Group of Bao’an Bureau of Industry and Information Technology and director of the Enterprise Service Center, Ao Weinuo, secretary-general of the Electronic Cigarette Professional Committee of the China Electronic Chamber of Commerce, and Shenzhen Airport (Group) Co., Ltd. discussed electronic cigarette products. The first discussion on the export air transport business. During the symposium, the three parties exchanged views on export product inspection and logistics capacity that e-cigarette companies are concerned about, and reached a preliminary consensus. Bao’an Airport will entrust Shanghai Chemical Industry Testing Institute to set up an e-cigarette testing agency at Bao’an Airport to provide e-cigarette products during transportation security inspections. At the same time, in terms of logistics capacity, the airport fully supports the export of electronic cigarettes and provides full protection for electronic cigarette enterprises to earn foreign exchange through export.
On March 20, 2022, Bao’an District, Shenzhen, China issued the “Several Measures of Bao’an District on Promoting the High-quality Development of Advanced Manufacturing and Modern Service Industry (Shen Bao Fu [2022] No. 15)”. The “Measures” contains a total of 56 articles, of which 16 are the implementation paths for the development of advanced manufacturing.
Related to the industry, in Article 8 of the “Measures”, it is clearly stated that “the implementation of the construction of electronic atomization professional industrial parks will be rewarded, and new electronic cigarette device and other characteristic and advantageous industrial enterprises will be rewarded“. It is the first time that the electronic atomization industry has been written into the red head document of the local government’s industrial support.
In addition, Voopoo, Smoore and RELX were selected into the “Guangdong Province Key Protected Trademark List in 2021”, and Voopoo Technology won honors such as “Shenzhen Top 500 Enterprises” and “Guangdong Top 300 Manufacturing Enterprises”. It proves that Guangdong Province attaches great importance to the electronic atomization industry.
The reason why Guangdong Province, especially Bao’an District, has repeatedly expressed its intention to support the electronic atomization industry is because of the “regional characteristic advantageous industries” mentioned in the “Opinions”. Relevant data shows that currently more than 90% of the world’s electronic cigarettes are produced in China, and the electronic cigarette manufacturing center is the entire Greater Bay Area with Shenzhen Bao’an as the center.
In 2021, the GDP of Bao’an District will be 442.182 billion yuan. The “2021 Electronic Cigarette Industry Blue Book” shows that the total export volume of Chinese vaping enterprises reached 138.3 billion yuan, which is evident in the contribution of the electronic vaping industry to the economy of Bao’an District. Up to now, Bao’an District has formed a complete industrial chain from upstream raw materials, to research and development, production, to terminal circulation, and even exhibition and service.
Therefore, in the foreseeable future, Bao’an District may further increase its support for the electronic atomization industry, promote the optimization and upgrading of industrial clusters, and further consolidate the advantages of regional characteristics.
China State Tobacco Monopoly Administration has released two messages on regulating the China e-cigarette market on March 11. First, the detailed regulations for the management of electronic cigarettes will be released and implemented on May 1, 2022; the second is the second draft of the national standard for electronic cigarettes, which clearly stated that electronic cigarettes should not present flavors other than tobacco.
Among them, the Regulation requires that e-cigarette retail sales need to apply for a tobacco monopoly license, and listing needs to be approved by the competent authorities. The second draft for comments proposes that the design of the vape “should not be inductive to minors, and the characteristic flavors of the product should not present flavors other than tobacco.” In other words, e-cigarettes other than tobacco flavors may become history.
Affected by this news, after the U.S. stock market opened on the evening of March 11, Beijing time, RELX Technology’s highest intraday stock price drop was over 40%, and as of the close, it fell 36.32%.
“The industry has long expected that the regulation of electronic cigarettes will become stricter. However, it is still a little shocking to see the severity of this document.” An electronic cigarette industry practitioner told the reporter.
The current e-cigarette market environment, China vape brand owners with R&D and production capabilities can not only have more market space, but also increase their enthusiasm for absorbing new technologies. In addition, for brand owners with a certain number of sales terminals and channel providers, their ability to control the market will gradually stabilize, and then lead the upgrading and iteration of industry product types.
1. R&D capability
At present, the national penetration rate of e-cigarette users in the United States has risen to 5.5%, while the user penetration rate in China is just over 1%. However, the ratio of per capita e-cigarette consumption to per capita GDP in the United States is no more than 1%, while that in China is close to 2%. It can be seen that Chinese e-cigarette users are more sensitive to the technological attributes of their products than overseas, so the adjustment direction of e-cigarette products should be based on their technical content, and research and development capabilities will become the key factor to break the situation in the future, which is the essential of the second growth of the industry.
2. Product Matrix
At present, the most mainstream cartridge-based pod systems on the market are divided into two parts: atomizing device and atomizing pod. The two product forms focus on different technical requirements for electronic cigarette products. Among them, the device, as a durable product, is the brain of the electronic cigarette, and it is crucial to the performance of the electronic cigarette, so it’s electronic and intelligence are the elements for the future electronic cigarette enterprises to grasp the market initiative. In terms of the basic product framework of the cartridge-baed vapes, different sections are combined to reflect the four research and development points of electronic cigarettes: heating technology, atomization technology, flavor taste and appearance design.
3. Sales terminal channels and channel management
In terms of product flavor innovation and user groups, young people aged 18-25 are highly receptive to new flavors such as fruits and desserts, and users aged 36-45 are most receptive to traditional tobacco and tea flavors. The 26-35-year-old group has no obvious preference for taste changes, which shows that this group is the main group for product innovation in the e-cigarette industry, and their consuming power is relatively strong, so they can have sufficient funds to experience and accept new products. It can be seen that the product adjustment of China’s electronic cigarette industry needs to be deeply cultivated in the main user group of 26-35 years old.
At the same time, electronic cigarettes, as mature consumer products, have grown up based on existing scientific research and industrial basic capabilities. Therefore, if electronic cigarette or vape brands want to innovate, they need to extend their scientific research capabilities to the most basic, such as chemistry, material science, etc. Metal Ceramics atomizing core have appeared overseas. In terms of battery life, some companies have developed new batteries (graphene) R&D.
On January 1, 2022, China’s import and export tariffs were revised. The customs code of e-liquid containing nicotine was changed from 3824999999 to 2404120000. At the same time, the regulation conditions added an automatic import license. So the e-liquid can’t be imported to China anymore. While the import tax rate remained unchanged.
As soon as the news came out, the e-cigarette industry got into deep despair and all were wailing.
Because some Chinese buyers’ goods have been shipped from abroad and are still on the way, they cannot be imported in compliance without applying for an automatic import license. Some of them could not be imported to Shenzhen when they arrived at Hong Kong Airport or the mainland cargo terminal, and had no choice but to return the goods. Leave alone the losses such as freight, warehouse rental, etc., Chinese vaping factories start to lack core raw materials, which greatly affects the production and export of electronic cigarette-related products.
For more than a month since then, vapers and manufacturers have been waiting for the news of the latest policy, and finally survived to the moment today when e-liquid can be imported normally.
On December 17, the Blue Book of the Electronic Cigarette Industry was released at the International Electronic Cigarette Industry Summit Forum. The Blue Book showed that in 2021, the China retail scale of electronic cigarettes is expected to reach 19.7 billion yuan, an increase of 36% year-on-year; the international market retail scale is 80 billion US dollars, a year-on-year increase of 120%, a three-year compound growth rate of 35%.
The Blue Book also shows that in 2021, China e-cigarette exports are expected to reach 138.3 billion yuan, a year-on-year increase of 180%, of which more than 50% are exported to the United States, followed by the European Union and Russia.
E-cigarette makers have been pitching in their two cents, after China last month expanded its Tobacco Monopoly Law to include vaping devices. The draft revision subjects e-cigarettes to the same regulations as traditional cigarettes. Xu Hua gets reactions from Shenzhen, where most of China’s e-cigarette factories are located.
Heated discussions have been underway among e-cigarette makers, as their products now fall under China’s Tobacco Monopoly Law. Authorities have released a draft of “Administrative Measures for E-Cigarettes.” Reactions from home and abroad have been mixed.
WANG NING President, China Electronic Chamber of Commerce “Soliciting opinions on revisions to the Tobacco Monopoly Law and regulating the e-cigarette market should be beneficial to the entire industry.”
JOHN DUNNE Director General, UK Vaping Industry Association “I think in its current form the legislation will have a massive influence on the industry both domestically and internationally, but not all in a good way.”
China’s e-cigarette industry has exploded over the past two decades, with early movers benefiting from unlimited access to the largest population of smokers in the world.
At least 95 percent of the world’s e-cigarettes are made in China. The growth potential is huge, but will the new regulations affect exports?
JOHN DUNNE Director General, UK Vaping Industry Association “This is especially important because markets like the UK, Europe and the U.S. already have robust regulations in place anyway that these products must follow. It adds unnecessary burden and expense. It could also force companies to move their production outside of China.”
But some firms remain confident in the future of e-cigarettes, saying they won’t take their factories out of China.
WANG SHENYI Chairman, Shenzhen Shikai Technology “We can look at the next management measures or national standards in a way that won’t restrict the industry’s development, but in a way that better supervises and regulates the market to make it healthier and better in the long run.”
XU HUA Shenzhen “The period for public comments on the draft regulation will end on January 29. Authorities say they welcome all opinions in the bid to standardize the e-cigarettes industry, and protect public health and safety under the rule of law. Xu Hua, CGTN, Shenzhen, Guangdong Province.”
On November 27, the Chinese government website reported that the State Council issued a decision on amending the “Regulations for the Implementation of the Tobacco Monopoly Law of the People’s Republic of China” (hereinafter referred to as the “Regulations”). Such new tobacco products shall be implemented with reference to the relevant regulations on cigarettes in these Regulations.”
This means that the entire e-cigarette industry in China is officially included in the tobacco regulatory system, and there will be laws to follow for the future development of the industry. For companies engaged in e-cigarettes and related industries. For a long time, “the sword hanging over their head has finally landed aside.” The legal status of e-cigarettes has allowed the companies in the industry to clarify their future development direction.
As far as VAPE HK is concerned, it’s time to say goodbye to the vape industry if the new tobacco products including vapes and heat-not-burn products follow the relevant regulations on cigarettes strictly in China. Luckily, the revised law says referring to the cigarette law, not according to. So there will be a large space for the vape industry to survive until some fatal regulation or law is rolled out. Not this time.
To prevent drug-related risks in the logistics and delivery industry and electronic cigarette companies, on August 9, the Anti-drug Office of Xixiang Street, Bao’an District, Shenzhen organized a mobilization and deployment meeting for anti-drug blocking and source interception inspections in the logistics and delivery industry of Xixiang streets and a mobilization and deployment meeting for the investigation and rectification of electronic cigarette companies.
Comrade Yao Wenqun, a member of the Sub-district Party Working Committee, attended the meeting. At the deployment meeting, Xixiang organized a leading group for the investigation and remediation work, and determined the investigation methods and specifications.
First of all, with the leadership of the community, organize the staff of the Narcotics Office, the community police, and the grid staff to carry out a one-week pull-net investigation on the logistics and delivery companies and e-cigarette companies in the jurisdiction, and have a thorough grasp of the logistics and delivery companies in the jurisdiction. The base number of its branches and terminal outlets, grasp the enterprise scale of e-cigarette companies, the source of e-liquid, etc.
Then set up the basic accounts one by one, focusing on the comprehensive analysis of basic information such as company name, registered address, legal representative, main contact person and method, business type, and company size.
At the same time, extensive publicity is carried out on the relevant laws and regulations of the company’s operations, the types of new drugs, and the hazards, so that logistics companies can sign a letter of commitment and send a letter to e-cigarette companies to strengthen the company’s awareness of law-abiding operations from multiple angles.
It is reported that in actual operations, Xixiang Sub-district investigated a total of 498 e-cigarette companies and 385 logistics delivery companies.
On July 29, Telling Holdings released the 2021 semi-annual report. The report shows that the company’s operating income in the first half of 2021 was 37.556 billion yuan, a year-on-year increase of 26.64%; the net profit attributable to shareholders of listed companies was 86.961 million yuan, a year-on-year increase of 19.3%; the net profit deducted from the parent was 76.9805 million yuan, a year-on-year increase An increase of 168.42%; basic earnings per share of 0.085 yuan per share.
The company said that in the first half of the year, the company continued to focus on its industrial Internet strategy, fully integrating grid channels with Internet platforms, and striving to create an efficient omni-channel social marketing network.
According to the data, Telling Holdings is mainly engaged in smart terminal distribution business, lottery business, retail e-commerce business, mobile resale and mobile Internet business. During the reporting period, the company’s net cash flow from operating activities was -1 billion yuan, a year-on-year decrease of 338.57%. The company said it was mainly due to the shipment of the advance payment at the end of the previous year.
It is worth noting that the ratio of net cash flow/net profit from Telling Holdings’ operating activities has continued to decline. The semi-annual reports for 2019, 2020, and 2021 show that the company’s operating activities net cash flow/net profit ratio is 14.72, 5.81, -11.74, respectively, and the quality of earnings is showing a gradual decline.
The 2021 semi-annual report shows that the profitability of Telling Holdings’ main communications business is very weak, and the gross profit margin of communications product sales is only 2.11%. In order to create new profit growth points, in the first half of this year, Telling Holdings began to accelerate the deployment of e-cigarette business, taking e-cigarette business as the company’s second life curve and intends to become the first channel brand in the electronic atomization industry.
Prior to this, the company signed a strategic cooperation agreement with the top e-cigarette brands Boulder and vvild, becoming the only national representative of Boulder and vvild. The two parties mainly cooperate in offline retail scenarios and conduct omni-channel sales. Telling Holdings is responsible for expanding the market for branded products and gradually increasing the market share of branded products. Recently, Telling Technology has joined hands with the electronic atomization brand vitavp, becoming the national representative of the vitavp brand.
According to iiMedia Consulting’s data, affected by factors such as tax rates, price increases, and strengthened national controls, the development of China’s cigarette market has slowed down, while the e-cigarette market has accelerated its expansion. The market size reached 7.86 billion yuan in 2019 and is expected to exceed 9 billion yuan in 2021.
IiMedia Consulting analysts believe that although the current market size of the e-cigarette industry is expanding year by year, due to the large group of traditional tobacco consumers in China and the country’s gradual tightening of e-cigarette regulations, the industry’s Development prospects should be cautious.
As of June 30, Telling Holdings has opened 1,414 stores through investment promotion. In the first half of 2021, the e-cigarette business of Telling Holdings achieved revenue of 26.365 million yuan, accounting for 0.07% of total revenue. The gross profit margin was 23.96%, which was 21.85 percentage points higher than the gross profit margin of the main business communication business.
Independent economist Wang Chikun told reporters that the tobacco industry has always been a major tax collector in my country, and the inclusion of regulation this time is also to prevent the disorderly impact of e-cigarettes on traditional tobacco. In this context, the government is bound to strictly approve the issuance of e-cigarette qualifications.
Wang Peng, an associate professor at Renmin University of China, told reporters that from a macro perspective, e-cigarettes face a very large policy risk. Whether from a social or medical perspective, e-cigarettes will not be promoted in a very positive manner. Public opinion events are very detrimental to the development of the entire industry.
For the channel business, there are also no small business risks, such as how to avoid publicity and sales to minors, and how to grasp the standards in advertising to meet the requirements of the regulation layer.
Generally speaking, the barriers to entry of the e-cigarette industry are relatively low, and there are fewer very attractive brands. A lot of publicity, store design, and a lot of time and labor cost are required. To a certain extent, store fixed cost investment It is also higher, leading to low profits.
Wang Peng believes that the current homogenization competition between e-cigarette brand owners and distributors is relatively serious. Either fight for price or fight for marketing, which will easily lead to bargaining and low profit margins. The future development of the e-cigarette industry must be towards compliance and branding, with its own characteristics and differences, and at the same time strengthening industry self-discipline and regulation.
