China’s New E-Cigarette Regulations Aim to Control Industry Dynamics

China is making significant strides to impose stricter regulations on e-cigarette manufacturing and investments. This decision responds to escalating concerns regarding intense competition within the industry and the problem of oversupply. This move is part of China’s broader regulatory efforts in the tobacco sector, which currently operates under a functional monopoly.

Details of the Draft Policy

The national tobacco regulator unveiled the draft policy on Thursday, following a recent State Council directive that introduced stricter controls on e-cigarettes and nicotine pouches. The adjustments come at a time when the e-cigarette industry faces various challenges, including the gradual phase-out of outdated production facilities, imbalances in the market structure, and compliance issues related to export regulations.

One of the key issues highlighted in the new regulations is the phenomenon of “involution-style” competition. This term refers to a self-defeating cycle of rivalry that has led to reduced prices and narrowed profit margins across multiple sectors, including tobacco. To tackle this challenge, the draft proposes limitations on both production and investment activities.

Curbs on Production and Investment

According to the proposed regulations, no new investment projects will be allowed, and any reconstruction or relocation of existing facilities must not lead to an increase in production capacity. Additionally, the guidelines emphasize that technical renovations aimed at expanding capacity on-site will be strictly prohibited.

Enhanced Operational Oversight

The draft policy prioritizes stronger regulatory oversight of operational capacity within the e-cigarette sector. Companies will be required to adhere closely to their established production limits. Any requests for adjustments to these limits will necessitate further approval and updated licensing processes.

With these new regulations, the outlook for the e-cigarette industry in China is set to undergo significant transformation as authorities aim to stabilize the market and protect it from detrimental internal competition.