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'Vaping' a slow burner in China, world's maker of e-cigarettes

E-cigarettes were invented about a decade ago by a Chinese medical researcher and China  is the world's leading producer of electronic cigarettes suppling 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.

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.

Centred 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.

For Chinese manufacturers of e-cigarettes, while the export market is surging, the domestic potential is tantalising.

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.

Analysts say China's domestic market would have to eventually open up to e-cigarettes.

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.

"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).

(Reuters)

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