Electronic Cigarettes Industry Receives Surprise Boost From Chinese Government

A Boost From The Chinese Government?

If you trace back the history of the modern-day electronic cigarettes you will very quickly learn of the Chinese influence over this relatively new device. While the structure and design of the original electronic cigarette has been tweaked and developed over the years, there is still a very close correlation with the Chinese business arena. Therefore, perhaps we should not be surprised that the electronic cigarette industry has received an unexpected boost from the Chinese government?

So, what exactly has the Chinese government got in mind and why could this be significantly beneficial to the long-term future of electronic cigarettes?

Tobacco smoking ban

Those who follow the worldwide tobacco industry will be well aware that China is now the major market for the likes of British American Tobacco and Imperial Tobacco to name but a few of the worldwide tobacco giants. There are in excess of 300 million tobacco cigarette smokers in China although when you bear in mind that over 1 million people per annum die from smoking-related illnesses, surely a move to ban tobacco smoking in public places is long overdue?

A number of cities throughout China already have their own smoking bans in public places although, due to the strength of the tobacco smoking movement, local authorities have been relatively lax in enforcing these rules. The situation is about to change with a number of Chinese government spokespeople hinting that a nationwide ban on smoking in public is likely to be in place by the end of 2014. There is no mention of electronic cigarettes in relation to this proposed smoking ban which could play into the hands of the electronic cigarette industry.

Will this encourage increased electronic cigarettes sales?

When you take into account the fact that no major health issues have been directly attributed to electronic cigarettes today and so many people in China die of tobacco cigarette related issues it seems sensible to assume this should positively impact electronic cigarette sales. When you also consider the fact that in excess of 100,000 people die in China each year because of passive smoking and it is seen as the “home” of the electronic cigarette, this further strengthens the argument?

Tobacco cigarette companies have depended upon China and the local region for a large percentage of their tobacco sales in recent times after US and European smoking bans came into play. Many financial experts believe that the electronic cigarette is the largest threat to tobacco cigarettes in the industry’s 200 year history. It will be interesting to see how the tobacco cigarette companies respond to this likely change in the marketplace and how this impacts short to medium term profitability.

Will we see consolidation in the electronic cigarettes industry?

It is common knowledge that the major tobacco cigarette companies have a backup plan to acquire some of the leading names in the electronic cigarette industry. The likely introduction of a tobacco smoking ban in public places across China was not wholly unexpected but perhaps the timing may surprise some. As a consequence, this can only speed up the ongoing consolidation in the electronic cigarette industry, although the financial clout and marketing capabilities of tobacco cigarette companies will not be as influential in the future due to advertising restrictions.

While it would be wrong to suggest the tobacco cigarette industry is dead, that everybody will switch to electronic cigarettes, the fact remains that China has been the leading market for tobacco cigarette sales for many years now. Some experts believe that we will eventually see the introduction of additional taxation on electronic cigarettes but this will likely be at a level which is but a fraction of the current tax on tobacco cigarettes. It is also worth noting that the US government received over $17 billion in tobacco taxes in 2011 and therefore as the electronic cigarette industry continues to grow, and the tobacco market weakens, any future income shortfall will need to be addressed.

Conclusion

While there have been a number of “informal” public smoking bans in place throughout many of China’s larger cities over the last few years, very few local authorities have enforced these regulations with any real vigour. Slowly but surely signs are emerging that the Chinese government is looking to introduce a nationwide ban on smoking tobacco cigarettes in public places due to the ever-growing impact upon the health of the Chinese population. So far there has been no talk of any similar restrictions for electronic cigarettes and when you bear in mind the history of electronic cigarettes, with many seeing China as its historic “home”, perhaps electronic cigarette retailers can look forward to the future with hope?

The landscape of the electronic cigarettes industry is changing, the tobacco cigarette industry is seeing diminishing returns and sales and the next few years will see a change in the balance of power. How influential tobacco cigarette companies will be within the electronic cigarette industry in the future remains to be seen. However, moves by the Chinese government have in many ways forced the hands of the tobacco cigarette companies and they are unlikely to sit idly by and watch their profits fall.

Mark Benson

For more information on electronic cigarettes and the various products available please visit the OKCigs website.