National Tobacco Monopoly Administration: Promoting the balance between supply and demand in the e-cigarette market and effectively preventing and mitigating the risk of disorderly competition in the market

The Zhitong Finance App learned that on December 25, the State Tobacco Monopoly Administration publicly solicited comments on the “Notice of the State Tobacco Monopoly Administration on Implementing E-cigarette Industry Policies to Further Promote the Dynamic Balance between Supply and Demand (Draft for Comments)”. The “Draft for Solicitation of Comments” proposes to promote a balance between supply and demand in the e-cigarette market. Coordinate an effective market and promising government, and approve the annual production scale within the approved production capacity as the company's annual production and sales target to reasonably meet the production scale adjustment needs of e-cigarette related manufacturers based on factors such as market order conditions, and effectively prevent and resolve the risk of disorderly competition in the market.

Strictly implement total production scale control, adhere to classification policies, and carry out strict production scale adjustment reviews. For enterprises whose domicile is located in an area with a good base in the e-cigarette industry and where enterprises are relatively concentrated, it is permitted to integrate production sites and residences into the same location. Continue to strengthen the supervision of e-cigarettes, strictly restrict high-risk market players, focus on inspection and control, and strictly investigate and punish illegal acts such as export returns, false customs declarations, and products that do not meet quality and safety requirements in accordance with the law. E-cigarette related manufacturers should implement their principal responsibilities, strengthen compliance, and ensure compliance in all aspects of the export trade chain.

The original text is as follows:

Notice on implementing e-cigarette industry policies to further promote the dynamic balance between supply and demand

(Draft for Solicitation of Comments)

Provincial tobacco monopoly bureaus:

In order to implement the e-cigarette industry policy, standardize the operation order of the e-cigarette industry, prevent and mitigate the risk of overcapacity, and improve the compliance level of e-cigarette related manufacturers, the e-cigarette industry (including electronics) is being further promoted in accordance with the “Tobacco Monopoly Law of the People's Republic of China” and its implementing regulations, “Opinions of the General Office of the State Council on Combating Tobacco Related Illegal Activities in the Whole Chain”, “Guidance Catalogue on Industrial Structure Adjustment (2024)”, “E-cigarette Management Measures”, “Certain Policies and Measures to Promote the Legalization and Standardization of the E-cigarette Industry (Trial)” (Nicotine for tobacco products, vapes, and e-cigarettes, the same below) The work notice relating to the dynamic balance between supply and demand is as follows:

1. Regulate the investment behavior of e-cigarette related manufacturers. Strictly implement the requirements of the restrictive e-cigarette industry policy, no investment in new construction projects, and no increase in production capacity in relocation or restoration projects. Original site technological transformation (including purchase of production equipment) projects generally must not increase production capacity. Those that do need to increase production capacity should comply with e-cigarette industry policies, regulatory policies and production capacity management regulations, have actual market needs and safety, health and environmental protection facilities and technical conditions compatible with production and operation, meet the direction of intelligence, high-end, and greening, and strictly follow the relevant requirements of the “E-cigarette Fixed Asset Investment Management Rules”. Among them, enterprises that mainly focus on export sales shall prove that products produced with additional production capacity comply with the laws, regulations and regulatory rules of the destination country or region. E-cigarette related manufacturers must not increase the number or capacity of production lines or add spare parts production lines in violation of regulations, outsource the main production process to unlicensed enterprises, expand production capacity in disguise, and circumvent fixed asset investment approvals.

2. Strengthen the regulation of e-cigarette production capacity. Adhere to market demand as the guide to promote supply-side structural reforms in the e-cigarette industry, coordinate enterprise equipment levels, business conditions and industrial trends, and implement e-cigarette certification capacity management in accordance with the principles of “fair disclosure, classification policies, and steady and orderly”. In principle, the approved production capacity of e-cigarettes should remain basically stable. E-cigarette related manufacturers should carry out production and operation within the approved production capacity, strictly prohibited from carrying out production and operation in excess of the approved production capacity, and those requiring adjustments should apply for re-approval of production capacity and carry out licensing procedures. E-cigarette related manufacturers that operate in accordance with the law and comply with the regulations of industrial policies and regulatory policies are allowed to integrate and restructure production capacity through production site mergers, etc., to improve enterprise management efficiency and capacity utilization.

3. Promote the balance between supply and demand in the e-cigarette market. Coordinate an effective market and promising government, and approve the annual production scale within the approved production capacity as the company's annual production and sales target to reasonably meet the production scale adjustment needs of e-cigarette related manufacturers based on factors such as market order conditions, and effectively prevent and resolve the risk of disorderly competition in the market. Strictly implement total production scale control, adhere to classification policies, and carry out strict production scale adjustment reviews. For enterprises whose domicile is located in an area with a good base in the e-cigarette industry and where enterprises are relatively concentrated, it is permitted to integrate production sites and residences into the same location. Continue to strengthen the supervision of e-cigarettes, strictly restrict high-risk market players, focus on inspection and control, and strictly investigate and punish illegal acts such as export returns, false customs declarations, and products that do not meet quality and safety requirements in accordance with the law. E-cigarette related manufacturers should implement their principal responsibilities, strengthen compliance, and ensure compliance in all aspects of the export trade chain.

4. Prevent and mitigate the risk of excessive e-cigarette production capacity. Adhere to the principles of legalization and marketization, and unblock production capacity withdrawal mechanisms. Strictly implement relevant laws and regulations, e-cigarette industry policies, and mandatory standards. Enterprises that do not meet industrial policies, product quality, hygiene conditions, production safety, fire protection, environmental protection, and energy consumption do not meet relevant national standards, and produce and sell unqualified products will be eliminated according to law and regulations. Enterprises that have had a low capacity utilization rate for a long time or have committed illegal or untrustworthy behavior are included in the scope of key supervision, and backward production lines are gradually eliminated and corresponding production capacity is reduced. Improve the e-cigarette standard system covering technical standards, substance limits, production processes, inspection and testing, quality and safety, hygiene conditions, etc., strengthen capacity building for accreditation, certification and inspection, and continuously optimize the production capacity structure through measures such as continuous revision of technical standards and licensing conditions. Heated cigarette smoke equipment production lines and approved production capacity shall be strictly distinguished from e-cigarettes, and production capacity shall not be mixed or calculated repeatedly.

5. Raise the level of compliance and operation of e-cigarette related manufacturers. E-cigarette related manufacturers should enhance specialized and standardized management capabilities, strengthen technological R&D innovation and brand cultivation, continuously optimize process technology, and consolidate and expand the core competitiveness of China's e-cigarette industry. Raise the level of digitalization of e-cigarette supervision, improve the traceability management system, support the formulation of e-cigarette supply and demand management work guidelines and fixed asset investment management guidelines, strengthen monitoring and early warning of enterprise fixed asset investment, approved production capacity and production scale use, and continuously improve the effectiveness of supervision. Promote the establishment of an e-cigarette credit supervision system, implement differentiated supervision measures, gradually simplify inspection materials and procedures for e-cigarette related manufacturers that operate in compliance and have good credit, and reduce the frequency of on-site inspections.

Violations of the provisions of this Notice are cases where they do not meet the licensing requirements of Article 13 of the “National E-cigarette Industry Policy Requirements” of the “Administrative Rules on Tobacco Monopoly Licenses for E-cigarette Related Manufacturers and Wholesalers”, and are dealt with in accordance with the relevant provisions of the e-cigarette industry policy and supervision policy according to the seriousness of the circumstances. Where any other provision is made in the industrial policy relating to heated cigarettes, it shall be implemented in accordance with its provisions.

This article was edited from: the official website of the State Tobacco Monopoly Administration; Zhitong Finance Editor: Chen Xiaoyi.