China's e-cigarette industry cuts 10% of staff, slows production as regulation tightens

[December 20, 2019]  By Josh HORWITZ

SHANGHAI (Reuters) - China's e-cigarette industry has laid off around 50,000 people since October, roughly 10% of its workforce, trade association estimates showed, as tightened regulation in the United States and China smother the once-booming sector.

Ao Weinuo, secretary of the Electronic Cigarette Industry Committee, late on Thursday said media scrutiny of vaping in the United States, the largest e-cigarette market, has also caused demand to wane just as China banned online e-cigarette sales.

Factories in the southern Chinese city of Shenzhen, where approximately 90% of the world's e-cigarettes are made by a 500,000-strong workforce, have consequently slowed production and cut staff.

The downturn comes after the success of e-cigarette firm Juul in the United States prompted investors in China to pour money into startups with products mimicking Juul's compact size and potent nicotine formulation - startups that industry watchers say are now saddled with excess inventory.

Association Chair Ou Junbiao, founder of e-cigarette maker Sigilei, earlier this month told media outlet China Venture that his company has cut headcount by about half from around 1,000.

One Shenzhen worker told Reuters that employer Teslacigs suspended hiring just as it moved into a facility intended for double its 400-strong headcount.

Another person at a factory of 300 workers said orders have fallen 30% since their peak, and that management will consider layoffs if the regulatory environment does not improve next year.

"We're under a lot of stress," the person said.

Leo Chan, an investor at venture capital firm Autobot who researches China's e-cigarette industry, said some makers tried to shift excess inventory by opening offline stores, but the increased competition angered original offline franchise partners.

Smaller brands with less investor backing have fewer options. One manager at a brand that launched this year said sales dropped 60% after online sales were banned in November.

"We invested a lot of capital into online sales as the core of our launch strategy," said the manager, who declined to be identified due to the sensitivity of the matter. "The new rules immediately messed up our path."

(Reporting by Josh Horwitz; Editing by Christopher Cushing)

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