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China’s vape industry has been hit with another round of legislation. The new measures build upon a decision to move the industry under the purview of the State Tobacco Monopoly Administration and regulate e-cigarettes / vape products as tobacco products, which will put significant restraints on the industry catering to the domestic market. We discuss the finalized regulatory measures below, implemented from May 1, 2022. Technical standards approved by China’s market regulator will go into effect from October 1, 2022.

(In this article, the terms ‘vapes’ and ‘e-cigarettes’ are used interchangeably and refer to the same product.)


  • On April 25, 2022, the State Tobacco Monopoly Administration (STMA) released a new set of trial policy measures for regulating the e-cigarette industry, titled Several Policies and Measures on Promoting the Legalization and Standardization of the Electronic Cigarette Industry (Trial) (the “trial policy measures”). The trial policy measures build upon existing e-cigarette rules and regulations to standardize and regulate the development of the industry in order “to put the development of the e-cigarette industry on the track toward legalization and standardization”. The new trial policy measures provide clarity on how the STMA intends to supervise and regulate the industry following the decision to regulate e-cigarettes as tobacco products and place them under the purview of the tobacco regulator. Jump to our updates on the latest trial policy measures here [anchor link].
  • On April 8, 2022, the State Administration for Market Regulation (SAMR) approved technical standards, numbered GB 41700-2022, which among other requirements ban the sale of vapes of any flavor other than tobacco. The standards take effect from October 1, 2022, meaning that some flavored vape products can be sold in China up until this date, which is beyond the initial date of May 1 stipulated in the latest administrative measures regulating the market. The document also sets a wide range of other technical standards, including permitted ingredients and additives, nicotine levels, testing and safety standards, and accreditation.
  • On March 11, 2022, China’s State Tobacco Monopoly Administration (STMA), the country’s top regulator of tobacco products, released the finalized version of the Administrative Measures for E-Cigarettes (the ‘measures’), which lays out new regulations for the production, marketing, and sales of e-cigarettes in China. The latest version of the measures is an amendment of a previous draft that was released for public opinion in December 2021. Several provisions have been amended and new regulations added in the latest version. Among other new regulations, the measures now prohibit the sale of flavored e-cigarettes, a significant blow to the industry. The measures build upon a decision in 2021 to move the industry under the purview of the STMA and regulate e-cigarettes as a tobacco product. The measures will go into effect on May 1, 2022.

Regulating China’s vape industry 

On November 26, 2021, China’s State Council announced it had amended the Regulations for the Implementation of the Tobacco Monopoly Law of China to include e-cigarettes and related products, stipulating that they are subject to the same regulations as tobacco products. This means vapes will now be subject to the same rules for licensing, production, sales, import/export, and taxation, among other rules, as traditional tobacco products.

Then on December 2, 2021, China’s State Tobacco Monopoly Administration (STMA) released a draft of the Administrative Measures for E-Cigarettes (the ‘draft administrative measures’), a new set of administrative measures for governing the emerging China vape industry. These measures were later amended, and a final version released on March 11, 2022.

The draft administrative measures were based on the following Chinese laws governing the tobacco industries and the protection of minors: The Tobacco Monopoly Law of the People’s Republic of China, The Law of the People’s Republic of China on the Protection of Minors, and Regulations for the Implementation of the Tobacco Monopoly Law of the People’s Republic of China. The draft administrative measures stipulated regulations for the production, sale, marketing, and import and export of e-cigarette products and nicotine for e-cigarettes. Perhaps one of the most significant rulings was that the industry would have to process all transactions through an ‘e-cigarette transaction platform’, overseen by the STMA.

Overview of China’s vape industry

The China vape or e-cigarette industry has exploded in growth over the past couple of years, with early movers benefiting from unfettered access to the largest population of smokers in the world. The industry also has massive growth potential.

According to a report from Chinese data analysis firm iiMedia Research, the penetration rate of e-cigarettes had reached just 1.5 percent in 2021. This report notes that this is far behind countries such as the U.S., the U.K., and Japan, all of which have penetration rates above 30 percent.

There is therefore significant room for expansion if companies are able to convince more of China’s 300 million or more smokers to wean off traditional tobacco.

Regulations will now be the biggest hindrance to the industry’s potential. Until recently, e-cigarettes were not regulated as a tobacco product. Companies instead operated in a legal grey area that ultimately enabled it to grow into an RMB 8.3 billion (US$1.3 billion) industry.

This decision, although perhaps not welcomed by the industry, will not come as a surprise; the government began deliberating it back in March 2021, and the pressure on lawmakers to sign off on the decision will only have become more acute as other laws aimed at enhancing the welfare of minors were released last summer.

The issue of the protection of minors was likely also behind the decision at the end of 2019 to ban the online sale and advertising of e-cigarettes, as concerns rose over how accessible the youthfully marketed product was to minors.

A look at China’s e-cigarette regulations 

The administrative measures are applicable to companies that engage in the production and operation of electronic cigarettes within China and cover all vape products, including vape cartridges, vape sets, and products sold as a combination of cartridges and sets.

Heated tobacco products will be regulated as traditional cigarettes and not as e-cigarettes.

Regulations for producers and manufacturers 

Under the administrative measures, local tobacco monopoly administrative departments are responsible for the monitoring and management of e-cigarettes in their jurisdiction.

The administrative requirements for the production of e-cigarettes have been somewhat relaxed in the new version of the administrative measures.

The draft administrative measures required local tobacco administrative departments to implement a registration system for e-cigarette companies and products. Companies were also required to register their vape products with the STMA before they can sell or market them in China. Eligible products were then supposed to be added to an approved product catalog.

However, the new administrative measures have removed mentions of the registration system and product catalog, possibly because the administrative burden on local authorities to establish and manage these systems was considered too high.

Instead, the local tobacco administrative departments are required to organize professional institutions to conduct technical review of e-cigarette products based on application materials, such as inspection and testing reports.

They must also conduct regular and ad-hoc inspections of companies and individuals with licenses to sell vape products.

License and registration

Companies must receive approval and obtain a license from the tobacco monopoly administrative department of the State Council before they can establish business to manufacture e-cigarettes. The license must then be ratified and registered by the market supervision and management department.

  • To be eligible for a production license, companies must meet the below criteria:
  • Have an appropriate amount of funding for the production of e-cigarettes;
  • Have the necessary technology, and equipment required for the production of e-cigarettes;
  • Comply with the national e-cigarette industry policy requirements; and
  • Other criteria stipulated by the STMA.

Manufacturers must reapply for a license if their scope of business changes and obtain approval from the STMA if they intend to expand production capacity.

The tobacco products used by manufacturers to produce e-cigarette products and nicotine must be purchased from a company with the right to operate and may not be purchased from an illegal seller.

E-cigarette products must use a registered trademark and the packaging must comply with the regulations on labels and warnings.

Regulations for China vape retailers and wholesalers

Companies engaged in the wholesale and retail of vape products are subject to the same rules and criteria for registration as producers and manufacturers. That is, they must obtain and receive approval for a license to engage in the wholesale or retail of e-cigarette products from the STMA or get approval for a change in the business scope of the license if they are pivoting into wholesale or retail.

The criteria to receive a license are the same as those required to receive a license for production and manufacturing listed above, adjusted to apply to wholesale and retail.

Prohibitions on the sale and marketing of e-cigarettes

Qualified and licensed retailers are also required to purchase vape products from a local licensed wholesaler, and wholesalers are not permitted to sell e-cigarette products to unlicensed retailers.

The administrative measures prohibit retailers and wholesalers from holding events, such as exhibitions, forums, and expos, to promote e-cigarettes.

In addition, e-cigarette retailers may not be located in the vicinity of any primary school, secondary school, vocational school, or kindergarten. They are also not permitted to sell e-cigarette products to minors and must place a sign banning minors from purchasing e-cigarettes in a prominent place in the shop.

E-cigarette products can now also no longer be sold through vending machines or any other self-service mechanism. The transport of e-cigarette products will be monitored by the local tobacco administration departments. The department will also impose limits on the amount of e-cigarette products that can be shipped and carried across borders, considerably curtailing the amount of product that small vendors can ship through the postal service.

One of the major new additions to the administrative measures is the ban on the sale of flavored e-cigarettes. The administrative measures now prohibit the sale of e-cigarettes in any flavor other than tobacco and the sale of e-cigarettes that can have flavors added to them.

China’s new e-cigarette transaction management platform

The STMA is in the process of establishing a ‘unified national e-cigarette transaction management platform’ (‘e-cigarette transaction platform’), through which manufacturers, producers, wholesalers, retailers, and other related companies will be required to carry out all vape product transactions. Imported vape products can also only be sold to domestic wholesalers or producers through this platform.

Overseas suppliers of e-cigarette products are also only permitted to sell products to domestic manufacturers or wholesalers through this transaction management platform.

Products that have not passed a technical review cannot be sold on the platform and the information on the e-cigarette products sold on the platform must be consistent with the information submitted for the technical review.

No seller or individual is permitted to sell e-cigarette products through a channel outside of this management platform.

Regulations for import and export

If a wholesaler wants to pivot to exports, it must update its license scope and get approval from the STMA.

All imported e-cigarette products can only be sold through the e-cigarette transaction platform. The imported products sold in China must also undergo a technical review and must use an approved trademark that has been registered in China.

The latest version of the administrative measures has slightly relaxed requirements for the production of vapes made for export only, having removed the requirement for such companies to register products and receive a production license from the STMA.

The new administrative measures, however, do stipulate that products made for export must meet the standards and regulations of the import company. If the import company does not have any relevant standards or regulations, then the products will be subject to China’s standards and regulations instead.

Oversight and role of corporate social credit system

Finally, the administrative measures give the STMA the power to take action against companies that violate any of the administrative measures or other tobacco regulations. Measures include holding supervisory talks, suspending the company’s platform trading qualifications, ordering the suspension of production and business operations, carrying out rectification, and even canceling the company’s qualifications for production and operation of e-cigarette products.

The STMA will also establish a corporate social credit system. E-cigarette companies that have breached regulations will be listed on the system and be subject to closer monitoring and will also have their information listed on the National Credit Information Sharing Platform.

New pilot measures for regulating e-cigarette market development

The new trial policy measures clarify how the STMA will regulate the e-cigarette market to ensure a balance in supply and demand, prevent oversupply of e-cigarette products, and curb “irrational” investment.

These policies are wide-ranging and include measures, such as controlling where and how the market develops, setting sales and production quotas, and regulating e-cigarette companies’ ability to raise capital.

Below we briefly outline some of the measures that will have the greatest impact on the industry’s development.

Market structure

The trial policy measures seek to control the structure of the e-cigarette industry by regulating where e-cigarette production capacity is concentrated, as well as dictating how the distribution of e-cigarette retail outlets will be decided.

First, the trial policy measures call for promoting the “appropriate” concentration of e-cigarette production capacity in “areas and companies with comparative advantages”. This means:

  • Building industrial clusters centered on the design, production and assembly of electronic cigarette products and atomizers in regions that already have foundation for e-cigarette production.
  • Building a raw material supply base centered on the production of nicotine for e-cigarettes in areas with existing raw material resources and R&D capabilities.
  • Restricting the development of the e-cigarette industry in areas that do not have the industrial foundation, core technology, market conditions, logistics and transportation capabilities, and talent required.

Meanwhile, the e-cigarette wholesale sector will be subject to a “territorial operation model” whereby wholesalers will be “reasonably” distributed across different regions depending on local conditions, such as the areas economic development, the number of retail outlets in the region, market coverage, and geographical location, among other considerations.

Local tobacco administrations will also be responsible for determining the layout of e-cigarette retail outlets within their jurisdiction, based on factors such as local demand and concentration of consumer groups.

Management of supply and demand

In order to maintain a balance of supply and demand, the STMA will implement annual domestic sales targets for e-cigarettes. These sales targets will be set by the STMA based on a variety of considerations, including tobacco control, market demand, economic development, demographic changes, and market conditions.

In order to maintain a balance in supply and demand within the domestic market, the STMA will set a range of annual targets to control the sales volume, production, and import of e-cigarettes and related products, such as nicotine for e-cigarettes, and atomizers. These include:

  • Annual domestic e-cigarette sales targets, based on a variety of considerations, including tobacco control, market demand, economic development, demographic changes, and market conditions.
  • Annual sales targets for e-cigarette products imported by wholesale enterprises and the import demand of nicotine and aerosols for e-cigarettes of manufacturers.

In addition to annual targets, the trial policy measures state that a trial filing system will be implemented for the import of nicotine and atomizers for e-cigarettes.

In order to supervise the supply and demand of e-cigarettes and prevent excess production capacity, the STMA will establish an “early warning mechanism” for e-cigarette production capacity by using information technology to monitor production capacity, evaluate actual market demand, ensure enterprises control production and sales.

Investment and funding management

In order to curb “irrational” investment in the industry, the trial policy measures state that the STMA will “strictly manage” e-cigarette investment.

Market entities must report to the STMA for a review if they intend to create new production capacity or expand production capacity through fixed asset investment. According to the trial policy measures, this is to prevent the “blind” expansion and duplicate construction by e-cigarette manufacturers.

Foreign investors will also be prohibited from investing in e-cigarette wholesale and retail. Foreign investors that wish to invest in e-cigarette production must undergo a review.

Finally, the STMA will also implement front-loaded review of e-cigarette companies that apply to make initial public offerings (IPO) inside or outside of China. Only after having undergone a review and received approval from the STMA can the e-cigarette companies take the next steps to list on a stock exchange.

Quality and safety

The trial policy measures call for the implementation of mandatory national standards and the introduction of supportive recommended standards. They also call for conducting follow-up research on international standards and promoting the integration of domestic and foreign standards.

Moreover, the trial policy measures clarify that e-cigarette products on sale will be required to comply with other relevant regulations and national standards, such as ingredient disclosure, packaging labels, health warnings, and registered trademarks, and must pass technical reviews.

This technical review of e-cigarette products must be carried out through a self-review and certification procedure. Companies are required to first conduct a safety test and assessment themselves and then apply for technical review to the STMA.

Earlier in April, the State Administration of Market Regulation (SAMR) approved technical standards, numbered GB 41700-2022, which will take effect from October 1, 2022. The standards set a wide range of other technical requirements, including permitted ingredients and additives, nicotine levels, testing and safety standards, and accreditation. They also reiterate the ban on the sale of vapes of any flavor other than tobacco.

The trial policy measures also call for improving public supervision of e-cigarettes by ensuring consumers have unimpeded access to channels through which they can report defective products and establishing and improving recall mechanisms for defective products.

Technological innovation

The trial policy measures promote technological innovation as means of improving product quality and safety. Specifically, they state that more research should be done on “basic theories, applied technologies, and safety risk assessment in terms of raw materials, materials, pathology, and harm reduction”. Other areas encouraged for research include technical research on atomizer technology, nicotine technology, finished product assembly technology, in order to improve product safety and stability and reduce harm.

In addition to technical product research, the trial policy measures also encourage the digitalization of the industry by developing “industrial cloud and big data platforms” to automate production and monitoring of cartridges and smoking accessories and deploying internet and information technology in manufacturing business management and marketing.

Finally, the measures also promote the “greening” of the e-cigarette industry by encouraging environmentally friendly practices and R&D and application of green technology. Encouraged measures include reducing energy consumption, water conservancy and pollutant management, and improvement of recycling and reuse systems for discarded e-cigarette cartridges.

How will the regulatory measures impact the vape industry in China?

China’s vape industry has shown remarkable resilience in the face of previous regulatory crackdowns. The ban on online sales of e-cigarettes implemented in 2019 was a major blow to the industry as it was suddenly cut off from an important revenue stream. However, some of the largest industry players were able to weather the storm by increasing their footprint of brick-and-mortar shops – often placed in prominent locations in busy shopping areas – which enabled it to sustain a high level of growth – at least in the short term.

The new administrative measures mark a considerably more hardline approach toward the industry. Some of the new restrictions and prohibitions could make the road ahead much more uncertain and even make the domestic market significantly less profitable.

The most glaring issue for the industry is the prohibition of the sale of flavored vapes, as this is one of the major appeals over traditional tobacco products. Shares of the e-cigarette RLX Technology, the market leader in China, fell 36.8 percent following the release of the new administrative measures.

Although there is no concrete market data on the topic, anecdotal evidence suggests very few users choose the tobacco flavor. Much of the marketing around the product also focuses on the different flavor options. In addition to the prohibitions, fears that the STMA would subject e-cigarettes to the same pricing and quota requirements as traditional tobacco products have now in part been confirmed by the new trial policy measures. The clarification on the control of domestic sales and production of e-cigarettes in China means that e-cigarette companies will no longer be able to set their own sales and production targets, which could severely harm the competitiveness of the industry.

The requirements to prove a company has the right amount of capital and facilities may raise the barrier of entry for newer and smaller companies that haven’t yet accumulated the requisite funding. This in turn could benefit the established players who already have the means and capital to meet the new requirements and can therefore more easily pass government assessments.

The requirements for license and registration for manufacturers will similarly hurt small companies while helping to give companies with better funding and facilities a competitive edge. However, it also places higher expectations on upstream producers and serves to properly standardize the industry. This will ultimately be good for consumers who can get more reliable, higher-quality, and safer products.

Finally, restrictions on investment and fundraising in the industry may significantly hinder e-cigarette companies’ ability to grow or expand – even if they are permitted to do so under the review requirements laid out in the trial policy measures.

Is there a space in which e-cigarettes can exist?

One possible silver lining to the crackdown on the industry may be that the administrative measures only explicitly prohibit the sale of flavored vapes in China, and do not appear to prohibit the production or export of flavored vapes. In addition, the trial policy measures have not imposed any restrictions on production of e-cigarettes for export or sales targets for e-cigarette exports. Instead they simply call for “optimizing the workflow of e-cigarette product export and e-cigarette product OEM processing and improving the service level for e-cigarette manufacturers engaged in export business”.

This means that Chinese e-cigarette companies may be able to continue to grow in overseas markets where there are more lax regulatory environments, such as in Europe and the US.

Moreover, the sanctioning of technological research in the trial policy measures may also be an encouraging sign, as it signals the government may indeed view e-cigarettes as a legitimate tool for harm reduction and smoking cessation, rather than as an illicit substance, as other countries in the region do.

It’s also worth noting that the regulations do help to legitimize an industry whose legal status was previously dubious. Some investors have been concerned that China would impose an outright ban on e-cigarettes, as Hong Kong did in October of this year. Many other Asian countries, such as Singapore, Thailand, and India, have taken similarly hardline approaches. This is now appearing increasingly unlikely. By incorporating vaping into the legislative framework of the tobacco industry, China is giving the industry a legal space in which to  exist. Whether merely existing will be enough for the industry to survive, or whether the regulatory crackdown will completely disincentivize any further growth or investment, remains to be seen.

Source: China Briefing   Written by: Arendse Huld
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