Chinese E-cigarette Stocks Slump Following Proposed Regulation

Chinese government authorities on March 22 suggested that the country’s tobacco industry regulations might also be applied to e-cigarettes and vaping products. Following the announcement, multiple Chinese e-cigarette companies experienced significant stock price plunges.

Bloomberg recorded that RLX Technology Inc, the largest Chinese e-cigarette brand, suffered a 48% drop in its stock price following the government statement.

China’s Ministry of Industry and Information Technology and the State Tobacco Monopoly Administration released a proposed policy announcement on Monday. The changes aim to regulate tobacco products in order to address product quality issues and combat false advertising. The government agency did not release details on how it will execute the regulations, but indicated that the changes might also apply to vaping and e-cigarette products. Those changes are currently going through a public consultations period, scheduled to end on April 22.

SEE ALSO: Chinese E-cigarette Company RELX Debuts on NYSE, Market Value Reaches $45.8B

China is the world’s largest market for tobacco products. Chinese Business Consulting firm iiMedia Research estimated that the Chinese e-cigarette market could be as large as ¥10 billion (US$1.53 billion) in 2021. There are more than 170,000 companies in this industry as of February 2021. The market is also expected to grow in the future years, and more than half of E-cigarette users are willing to recommend the products to people around them.

In 2019, Chinese authorities banned e-cigarettes from online shopping channels. Other countries have also adopted similar restrictive policies following reports revealing concerns over the adverse health effects of vaping. The restrictions led e-cigarettes companies to invest significantly in developing physical stores across the country to make up for the loss of business from e-commerce. RLX, for example, received 30% of its revenues from online sales prior to the ban. In January 2020, the company subsequently pledged to invest over ¥600 million (US$91 million) over the next three years to open 10,000 authorized sellers in China.

South China Morning Post reported RLX raised $1.4 billion during its initial public offering in January earlier this year. The successful listing effectively turned the company’s founder Kate Ying Wang into a billionaire overnight. But the recent stock price drop has decreased Wang’s net worth from $6 billion to $3.4 billion.

The World Health Organization (WHO) has issued a warning regarding the danger of e-cigarettes, claiming that “evidence reveals that these products are harmful to health and are not safe.” In the page introducing the harms of e-cigarettes, the WHO also listed the products’ risks to youth and adolescents. Like traditional tobacco products, e-cigarettes also contain toxic substances and pose risks to both users and non-users.

According to information from the WHO, vaping is currently banned in over 30 countries around the world. WHO recommends that countries consider policy options such as preventing non-smokers and children from using the products, restricting advertising and promotions, and prohibiting e-cigarette producers from using favoured products that may appeal to children. Other policy recommendations include banning e-cigarettes from indoor spaces and tackling unproven health claims regarding the products.

Forbes reported that RLX has engaged in efforts to expand its business outside of China since 2020, with a particularly keen interest in entering the US market. RLX currently focuses entirely on China and only makes products from its own brand.

South China Morning Post also reported that RLX announced its plan for a new laboratory in Shenzhen to study the short and long-term impacts of e-cigarettes compared with traditional cigarettes. The company planned to utilize technologies like 3D printing to simulate the effects that vaping could have on human lungs.

A report from Citigroup suggests that by 2050, smoking will disappear from countries like the United States, Australia, and a significant part of Latin America. Over the past 20 years, the number of children smoking decreased by almost 75%. Furthermore, tobacco use among men is declining for the first time.

However, in countries like China, France and Russia, smoking will likely remain common until 2050.