Bloomberg Businessweek - USA (2019-11-25)

◼ BUSINESS

26.6%

50.

2.

0.

0.

9.

1.

5.

0.

Alladults

Men

Women

● Prevalenceof

smokingin China

◼Usetobacco

◼Havetried

e-cigarettes

◼Use e-cigarettes

18

ILLUSTRATION BY INKEE WANG. DATA: WORLD HEALTH ORGANIZATION

THEBOTTOMLINE Chinahasabout 300 millionsmokers.Vaping

startupshadhopedtoconvertmanyofthemtoe-cigarettes,buta

surgeofregulationcouldextinguishtheirgrowthplans.

a massive—and lucrative—successor to traditional

cigarettesinChinacouldseetheirhopesgoupin

smoke.“There’sa hugeopportunity,butgivena lot

ofthenewregulations,there’salsoa hugeregulatory

risk,” says Thomas Piachaud, a director at Kantar

Consulting in Shanghai.

Nevertheless, startups such as RELX Technology

and Shenzhen Xuewu Technology Co., which owns

the vaping brand SnowPlus, aren’t quite ready to

give up on persuading the country’s 300 million

smokers to shift to high-tech smokes. “Even if you’re

abletoconvertonlya smallnumberofsmokers,”

saysPiachaud,“giventhesizeofthepopulation

andsmokinghabits,youwouldmakequitea lotof

moneyfromdoingthis.”

Tokeepgrowingevenastheregulatorynoose

tightensinChina,e-cigarettemakersareembracing

a controversialstrategyalreadyunderattackinthe

U.S.:churningoutflavoredvapes.IntheU.S.,the

proliferationofflavorssuchasmangoandmintfrom

JuulLabsInc.hasbeenblamedfortheriseofvaping

amongteenswhoweren’tpreviouslysmokers.The

U.S.company,whichisn’tsellinginChinaanymore

aftera briefattemptearlierthisyear,hashaltedsales

offlavoredpodsbackhomeaftera regulatoryinves-

tigationintowhetheritsmarketingtargetedteens.

Juulhasdeniedtargetingyouths,sayingitsdevices

areforadultsseekinganalternativetocigarettes.

“Wedoknowthere’sa lotofargumentabout

flavor—whetherit’sgoodforadultsornot,whether

it hasa badimpactonkidsornot,”saysKateWang,

formerheadofUberChina,who’snowRELX’schief

executiveofficer.“InChina,weseehowtheflavors

canbea helpfulfactorforadultsmokers[whowant

toquitcigarettes].Thisis a findingthatweare100%

sureonfromDay1.”

SnowPlus co-founder Derek Liagrees that

flavorsareessentialtoconverttraditionalsmokers

tovaping:“Ireallythinkit’sa balancethatthe

governmentneedstoconsider,”hesays.

RELX’s blockbusterflavor ismungbean, a

traditionalAsianingredientcommonlyusedin

soupsanddesserts.Thecompanyalsotriedsuch

flavorsasbubblemilkteaandpeachoolongand

offersthemedpackstiedtoholidaysincluding

HalloweenandChristmas.Meanwhile,SnowPlus

hasintroduced a pod in Southeast Asian markets

that’s flavored like the energy drink Red Bull. It also

sells vaping pods that taste like lychee and pineapple

coconut. “New flavors are very important, because

that’s how you attract smokers or those who feel it’s

a trendy culture to follow,” says Yong Teng, a part-

ner at LEK Consulting in Shanghai.

Still, some believe China’s vaping companies

are living on borrowed time. Local media reports

say more regulation is on the way, including a cap

of 2% nicotine content in vape pods—far below the

5%inproductspopularwithconsumers.There’s

alsoindustrytalkthatChinaTobacco,thestate

monopoly, is exploring its own vaping products. It

contributed about 1.2 trillion yuan ($164 billion) in

profitandtaxestothegovernment’scoffersin2018.

Estimated at $781 million in 2018, Chinese

e-cigarettesalesaresmall comparedwith the

U.S.’s$3billionannualmarket.Butthenation’s

entrenchedsmokinghabithasbusinessesconvinced

e-cigshaveplentyofpotential.China’ssmokingrate

hasheldsteadyata thirdofitspopulation even as

the rate is losing momentum globally. And smoking

among younger Chinese age 15-24 rose from 17.9% in

2010 to 18.6% in 2018, according to the World Health

Organization.

China has been criticized by activists for its lack

of progress in curbing youth smoking. In China,

“this gateway effect for children from e-cigarettes

might be even greater than in the U.S.,” says Gan

Quan, New York-based director of tobacco control

at the Union, a health-care nonprofit.

E-cig makers say they’re responding to changing

sensitivities about smoking. “When different mar-

kets start to have different regulations and expecta-

tions, we adapt our messages to make sure we are

compliant,” Wang says. RELX and SnowPlus also are

focusing more on brick-and-mortar retail shops and

overseas expansion in vape-friendly markets such as

SoutheastAsia,NewZealand,andtheU.K.

For now,Chinesevapersareenjoyingtheir

e-cigarettes while they can. Zichen Yang, a 23-year-

oldcivilservantinShandongprovincewhostarted

vapingfruityflavors twoyearsago tokick his

smokinghabit,sayshemayrelapseif there’sa

complete ban on e-cigs. “Let’s see what happens,” he

says. “Right now, I’ve got some vape pods saved up.”

�Lisa Du, with Qian Ye and Ellen Huet