E-Cigarettes: China’s Next Growth Industry

Amidst the growing global regulation on tobacco use and rising public awareness about the hazards of smoking, e-cigarettes are becoming a new, emerging industry. Invented by a Chinese medical researcher about one decade ago, electronic cigarettes are battery powered devices that allow users simulate smoking by vaporizing liquid nicotine (among other additives), but in fact have no tobacco. Since being first released on the consumer market in 2005, the global e-cigarette market has been growing rapidly. In the United States, e-cigarette sales have grown at an annual rate of 115 percent in the 2009-12 period. It is estimated that global e-cigarette market could increase to $10 billion by 2017. Some analysts even predict that e-cigarette use will eclipse that of combustible cigarettes in ten years. Over 95 percent of the e-cigarettes worldwide are produced in one place: Shenzhen, China.

What are the implications of the growing global e-cigarette market for tobacco use in China, the world’s largest producer and consumer of tobacco products? As it’s been covered here and elsewhere, one of the biggest public health problems in China is the widespread tobacco use. About 1.2 million people die annually as a result of tobacco-related illnesses in the country. But e-cigarette use remains a very small portion of China’s $200-billion-dollar cigarette business . Combustible cigarettes are still widely popular and readily available. Lack of market regulation and the low barriers to market entry result in fierce competition and shrinking profit margin. And despite the advertisements, e-cigarettes have not been completely safe.

E-cigarettes are not yet popular in China , but the market potential for e-cigarettes is huge. If only 1 percent of China’s smoking population turned to e-cigarettes, it would mean a market of about 3.5 million e-cigarette users. In April, China banned Party and government officials from smoking in public places or during official activities. The tremendous challenges that China faces in enforcing the ban may encourage more officials to turn to e-cigarettes as an alternative, which in turn could create powerful “demonstration effect” for the ordinary people to follow suit. Furthermore, because e-cigarettes’ smoke is less harmful, it is believed that this will significantly lower the health risk caused by second-hand smoke in China . As many as 740 million are regularly exposed to second-hand smoke, including 180 million under the age of 15. Finally, many of the safety risk and health problems associated with e-cigarettes are likely caused by the non-uniformity and inconsistent quality of the products (i.e., people tend to buy cheap, low-quality e-cigarettes) rather than the products themselves. In August, about 500 representatives of the global e-cigarette industry will meet in Shenzhen to unveil new technologies and discuss how to improve safety and health standards industry-wide.

Global trends suggest that e-cigarette use will grow and be here to stay while supplanting regular cigarettes. This will be no different for China.