China’s Vaping Industry Slowly Recovering from Coronavirus

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Together with other recent developments, the Covid-19 outbreak put China’s vaping industry under intense pressure, forcing factory shutdowns and event cancelations. But the situation appears to be gradually returning to normal.

By Thomas Schmid

It would be futile for a bimonthly trade periodical such as Tobacco Asia to attempt an up-to-date impact account of the coronavirus threat on China, because the situation currently is in constant flux, practically changing on a daily basis. But as business journalist Katie Prescott reported in a BBC article at press time, “factory activity in China fell at a record rate in February, as manufacturers closed their operations to contain the spread of coronavirus.” Indeed, the country’s official Purchasing Manager’s Index (PMI) dropped to only 35.7 points (from previously 50) in January. “[This] shows [that] the virus is having a bigger impact [on China] than the financial crisis that shook the world last decade,” Prescott noted. PMI figures are calculated using data from monthly surveys of private sector companies and are considered a key indicator of economic health.

From crisis to crisis

China’s vaping sector has been affected, too, as authorities implemented stringent measures in an attempt to contain coronavirus, which since has been officially termed as “Covid-19” by the World Health Organization (WHO). But in fact, the Covid-19 outbreak actually is only the latest major hit afflicting the country’s vaping industry in the span of less than six months, taking it from crisis to crisis.

First, there was, in November 2019, the sudden prohibition by China of all domestic online sales of vaping devices and accessories, which affected an estimated 10 million active domestic users. That was followed by US FDA outlawing certain flavored vaping liquids in January (see our related story in this issue), compromising the perhaps single most important global export market for Chinese vaping firms. And then Covid-19 showed its ugly face, leading to numerous trade event cancelations and postponements (including the all-important IECIE exhibition in Shenzhen), as well as travel bans and temporary factory closures.

Resuming work after temporary closure

One case very much representative of numerous other firms is that of Beijing-headquartered RELX Technology, developer and manufacturer of a broad range of high-end vaping devices and pods under the RELX brand. Founded in early 2018, RELX has risen to become Asia’s leading e-cigarette brand and has garnered a 62% market share in China according to Nielsen Research. In an effort to curb the spread of Covid-19, China’s communicable diseases department (CDC) on January 24 issued a ban on crowd gatherings, including temporarily closures of factories, businesses and schools. “In response, RELX decided to suspend its production in accordance with the CDC’s guideline,” the company’s international public relations lead, Yasha Wolfman, told Tobacco Asia. Production has only resumed “carefully and in stages” since February 17, according to Wolfman. To prevent possible contamination of the factory facilities with Covid-19, “all workers who had returned from other locations after the Chinese Lunar New Year celebration were required to self-quarantine for 14 days before we allowed them back to work,” she said. “We expect the factory to be back to full capacity before the end of March.”

“Global Open Day” lock-down

With practically all regional vaping exhibitions either having been canceled for good or postponed indefinitely, RELX was confronted by a conundrum of its own. The company had scheduled for mid-February an exclusive two-day “Global Open Day” event for which it had invited a large number of local and international key business partners, all to be flown in and accommodated at company expense. When Covid-19 hit, the event was postponed until further notice, depriving invited guests of the unique opportunity of taking an insider’s gaze at the firm’s latest state-of-the-art products. “While we may have incurred costs due to postponing the event, our top priority was the health of our guests and we couldn’t risk jeopardizing their safety,” Yasha Wolfman explained to Tobacco Asia. “RELX believes that its distributors, business, and media partners will understand and appreciate what we think was the right decision given the circumstances.”

Employee lay-offs

At least RELX was not forced to lay off any of its staff, primarily thanks to its healthy capitalization. Instead, Chinese media reported the firm as having established a RMB20 million (US$2.87 million) fund to support its retail partners whose sales were adversely affected due to consumers staying indoors and the temporary closure of stores. Other outfits didn’t sail through the crisis so comparatively easily, though. According to tech news website technode.com, vaping startup Snowplus had to lay off “a significant portion of its employees.” Technode noted that the first wave of lay-offs already occurred in November 2019 when China’s online sales ban came into effect. Dwindling sales in the US due to the flavoring ban caused more staff reductions, and lastly Covid-19 turned out to be yet another proverbial nail in the coffin. While the Shenzhen-based company described its measure as “conducting staff optimization as a natural part of the growth of any business,” Chinese media reports were less selective in their choice of words, suggesting that a full half of the work force had been axed.

Voluntary factory re-assignment

As vaping firms left and right suspended operations as per the CDC’s “request”, another company closed up shop entirely voluntarily in order to help mitigate the virus threat. Shenzhen IVPS Technology Co. Ltd., perhaps better known for its vaping brand “Smok”, was widely reported as having stopped production so its clean rooms could be used to urgently manufacture face masks. The country had experienced a severe shortage after the government had made it compulsory for everyone to wear masks in public and at the workplace. “The company and its c.e.o. felt obliged to make that commitment as a community service,” a local source told Tobacco Asia under condition of anonymity. “Perhaps as a reward, the firm subsequently was one of the first vaping industry players allowed [by the authorities] to resume work on February 17, while most others only could reopen as of February 24,” the source claimed.

Supply chain shortages resolved?

Meanwhile, Jackie Zhuang, general manager of Canada-based Foxlock Enterprises Corporation* and sort of a “vaping industry guru” in his native China, said that face mask shortages were not the only issue. “Many vaping firms also had been bogged down by temporary problems in their supply chains, mainly concerning chipsets, tubes, and other rubber materials needed for production,” he said, adding that the bottlenecks had now been overcome. “Since February 27, most factories have been picking up full-scale production again, particularly the larger companies,” he asserted. “The supply chain has recovered remarkably well and in my opinion everything will be back to normal by late March.” Despite this rosy outlook, Zhuang nevertheless also conceded that small businesses and new brands in particular may not emerge from the crisis entirely unscathed. “I think it has cost them a lot of opportunities and many among them will have to yield the field to bigger players,” he said.

Survival of the fittest is an iron law of nature, of course. If Covid-19 should lead to some of the weaker among China’s estimated 9,500 vaping industry firms calling it a day, it is hardly going to have serious ramifications for the sector as a whole. “If anything,” assessed Zhuang, “China’s vaping industry will only grow stronger from the crisis. Flavor and device bans and the disappearance of some companies notwithstanding, I even foresee production outputs accelerating as the world will continue vaping.” Whether Zhuang’s optimistic projections will be reflected in reality only time can tell; and it primarily depends on whether China’s Covid-19 control measures are going to accomplish their job as effectively as everyone is hoping they will. 

*Foxlock Enterprises Corporation markets “Thermalouc”, an HNB device brand primarily developed for the Canadian market but manufactured in China.

Snowplus announces major investment

Just as Tobacco Asia went to press, Snowplus, the vaping company mentioned in the main article as having laid off “a significant portion of its workforce”, announced a global investment amounting to approximately US$125 million. According to Derek Li, the company’s co-founder, the funding has been raised from investors in Asia, North America, Europe, and the Middle East.

“With the global vaping market expected to grow to US$29.39 billion at a rate of about 20.3% through 2022, Snowplus has invested into the establishment of sales teams, partnerships, and other expansion efforts across four global regions and will continue to strengthen its presence in the domestic market [and] actively expand to targeted international markets,” the firm said in a press release.