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 E-cigarettes were invented about a decade ago by a
Chinese medical researcher and the country supplies nearly all
global demand. Puffing on the devices, or vaping, is surging
worldwide, but it forms only a tiny part of China's 1.2 trillion
yuan (about $200 billion) cigarette business.
Now, rising public awareness about the hazards of smoking, coupled
with China's hardening stance on smoking in public, is opening up an
opportunity for e-cigarettes to make inroads into the world's
biggest tobacco market.
"As more and more places become off limits to smoking, I find myself
using e-cigarettes more often," said Qu. Since starting using the
product six years ago for health reasons, Qu has started selling
e-cigarettes himself, expanding the business from exports to the
domestic market this year.
E-cigarettes are mostly sold online in China, where government
regulation around the product is still lax. Countries like Singapore
and Brazil currently ban e-cigarettes.
Centered in the southern metropolis of Shenzhen, Chinese
manufacturers including Shenzhen Smoore Technology, FirstUnion
Group, Shenzhen Seego Technology Co Ltd and Ruyan Tech make around
95 percent of the world's e-cigarettes, slim, battery-powered metal
tubes that turn nicotine-laced liquid into vapour that is inhaled.
Vaping is potentially a healthier alternative to smoking as the
absence of combustion averts some of the harmful side-effects of
tobacco smoke. But a big issue is the lack of long-term scientific
evidence to support the safety and effectiveness of e-cigarettes,
prompting critics like the British Medical Association to warn of
the dangers of their unregulated use.
Nevertheless, the e-cigarettes market is growing fast, although it
is still only a tiny proportion of the global tobacco business. Last
weekend, Hollywood stars Leonardo DiCaprio and Julia Louis-Dreyfus
were seen smoking e-cigarettes at the globally televised Golden
Globes awards ceremony.
Some analysts predict e-cigarettes could outsell conventional
cigarettes within a decade, particularly as Big Tobacco grapples
with declining sales due to government regulation and health-aware
consumers.
E-cigarette sales in the United States grew at 115 percent each year
between 2009 and 2012, and could grow us much as 240 percent this
year, according to experts. The global e-cigarette market could
increase fivefold to $10 billion by 2017, according to some
estimates.
CHINA'S TANTALIzING MARKET
For Chinese manufacturers of e-cigarettes, while the export market
is surging, the domestic potential is tantalizing.
Even a tiny portion of its 300 million-plus smokers would offer an
attractive prize. In 2012, Chinese smoked a total of 2.46 trillion
cigarettes — 4.8 per person, per day — and the country accounts for
one-third of global consumption.
"The harsher control of tobacco is great news for electric
cigarettes," said Lai Baosheng, general manager of e-cigarette maker
Smoore, adding lax smoking rules in China had previously slowed the
development of the business.
Beijing has moved to clamp down on smoking, reinforcing a ban on
officials smoking in public and increasing the price of tobacco by 5
percent this month. Health authorities said they would enforce a ban
on smoking in public places nationwide this year — a law that has
long been in the works.
Smoore shipped over 100 million e-cigarettes to mostly Europe and
the United States in 2013 with a sales value of 800 million yuan,
double the level a year before, although Lai says the company is
starting to eye the opportunity within China as smoking rules
harden.
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Analysts say China's domestic market would have to eventually
open up to e-cigarettes.
"There's an unavoidable logic here that eventually no one will smoke
regular tobacco on this planet," said Shane MacGuill, London-based
tobacco analyst at Euromonitor.
"China won't be able to become a kind of ghetto of tobacco, so there
will have to be some movement towards an alternative, though how
soon it's going to happen I'm not sure. It will happen but it will
take longer."
Tobacco companies such as British American Tobacco Plc and Philip
Morris International Inc as well as independent U.S. firms already
source e-cigarettes from China. But e-cigarettes could also give
them entry into the Chinese market — currently tobacco sales in
China are largely governed by a state monopoly.
Tobacco imports made up less than 1 percent of China's market in
2012, according to Euromonitor, with the China National Tobacco
Corporation dominating 98 percent of the domestic market, according
to a paper from Brookings.
E-cigarettes offer a potential route into China's closely controlled
tobacco market for brands such as Lorillard Inc's blu e-cigarette,
Philip Morris parent Altria's MarkTen, BAT's Vype or Reynolds
American Inc's Vuse.
With China's large state-owned tobacco firms largely steering clear
of e-cigarettes — only one has made an obvious mention of looking
into the technology — global Big Tobacco could target wealthier,
more health-conscious smokers in China's urban centers.
But regulation of China's e-cigarettes market is still in flux,
and there are serious obstacles, not least China's reluctance to
risk losing the massive tax revenues currently derived from regular
tobacco. The country could also decide to control any e-cigarette
market as strictly as it does the traditional tobacco industry,
leaving little room for outside players.
"Nonetheless, I think it has to be seen as a potential way in to the
Chinese market," said Eddy Hargreaves, tobacco analyst at Cannacord
Genuity.
"The potential generally is huge and we'd expect it (to catch on in
China), albeit it at a slower rate to the United States and Europe."
($1 = 6.0412 Chinese yuan)
(Additional reporting by Shanghai
newsroom; editing by Kazunori Takada and Raju Gopalakrishnan)
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