SHANGHAI Jan 16 When Qu Liang's wife became
pregnant, the 30-year-old Shanghai salesman switched from
smoking to "vaping", a practice uncommon in China although it is
the world's leading producer of electronic cigarettes.
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.
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
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 TANTALISING MARKET
For Chinese manufacturers of e-cigarettes, while the export
market is surging, the domestic potential is tantalising.
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.
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
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
"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."