vape market in China

The e-cigarette and vape market in China: Will brands target young adults or convert smokers?

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Vaping has become a trend worldwide in recent years. The e-cigarettes which were previously introduced to help smokers quit has become a symbol of the Gen Z. The size of vape market in China is still smaller than that in the U.S., despite a much larger smoking population.

Many users, including middle schoolers and high schoolers, have become addicted to nicotine after vaping. Its popularity and user abuse have inevitably caused many controversies, especially in the U.S., where the trend started. Despite all the controversies, the industry continues its rapid growth worldwide. Although the recent trend took off in the U.S., the first e-cigarette was, in fact, invented in China more than a decade ago. The country, specifically Shenzhen, as the manufacturing hub for most e-cigarettes and auxiliary products for the worldwide market, is also the home for many companies renown in foreign markets. With many smokers and relatively less social stigma linked to nicotine products, China was not an exception to this global trend.

The potential of its China’s own vape market, however, hasn’t been fully explored. The population’s mindset regarding vaping and smoking, the cultures, and government regulations regarding e-cigarettes make it a unique market.  

Will the biggest tobacco market also become the biggest vape market?

The connection between the electronic cigarette market and the tobacco market is self-explanatory. Tobacco companies have entered the market, as many smokers have become more aware of tobacco products’ health risks. The acquisition of Juul Labs by Altria (previous known as Philip Morris) reflects the interconnectedness of two industries and markets; it also indicates the possible future direction of tobacco companies’ development.

According to the World Health Organization study in 2018, China is the biggest tobacco market globally, with more than 300 million cigarette smokers. 60% of the smokers are male, and a smoker spends an average of 160 US Dollars per year on tobacco products. The market generates the most revenue globally, and the market is still growing. An annual growth rate of 1.4% is predicted, and the revenue is expected to reach 240 billion U.S. Dollars in 2021. The e-cigarette and vape market in China is still insignificant comparing to tobacco market. As of the end of 2019, an estimated 7.4 million people in China are regular e-cigarette users. That means the electronic cigarette industry in China can still potentially convert a large number of smokers.

 Tobacco users and e-cigarette users in China

Sources: WHO, Tsinghua University, designed by Daxue Consulting, Tobacco users and e-cigarette users in China

Just as the trend observed elsewhere, the electronic cigarette industry in China now targets both existing smokers and non-smokers. As more than 82 million adolescents will be entering adulthood in the next five years, many might probably get their first nicotine hit from vaping rather than smoking. Thus, with such a large potential target customer base who might want to seek a less harmful nicotine intake method, vape market in China will continue to grow.

Globally, the e-cigarette market in 2019 generated 11.73 billion U.S. Dollars in revenue. It has an expected CAGR of 17% in the next few years, predicted to reach 21.4 billion by 2023. Among all the countries, the U.S. is still the largest market, but the Chinese market has also proliferated. Considering China’s status as the biggest tobacco market, it has enormous potential to continue the current rapid growth rate. In 2018, the Chinese e-cigarettes and auxiliary products had a market size of 5.52 billion RMB, and it is predicted to grow more than double to 11.28 billion RMB by 2022.

Chinese e-cigarettes and auxiliary products market size

Source: Statista, designed by Daxue Consulting, Chinese e-cigarettes and auxiliary products market size

Perceptions of vaping in China

In China, perceptions of vaping and smoking are somewhat different from those in the West, especially compared to the U.S. However, the perceptions differ depending on the demographic groups. People in certain groups, such as less educated, low income and rural populations, are more likely to have smoking habits due to the relatively low tobacco price and smoking culture within their circles. Tobacco offerings (递烟) are a common phenomenon, and it is usually viewed as a polite gesture among Chinese men, and will cause even those who don’t consider themselves smokers to light up. For the less educated populations, the switch to vaping is less common because the stigma about vaping is usually more prevalent than the stigma about smoking.

a common practice among Chinese men at business events and social gatherings such as holidays and weddings

Source: Sohu, Tobacco offerings, a common practice among Chinese men at business events and social gatherings such as holidays and weddings

The smoking culture is also prevalent in business settings. Offering tobacco in business settings is a standard practice, in fact,smoking is considered an important socializing event in some business settings. However, because business people typically have more resources and pay more attention to health, a small number of e-cigarette products, like once-famous, Ru Yan, and “healthier” cigarettes, such as those with herbs, target those customers.

Chinese netizens question whether vaping is healthier

Nonetheless, vaping is still mainly considered a phenomenon among the younger generations and its health benefits compared to smoking are often dismissed by the older generations as scams. On Zhihu, there exist questions that reflect some people’s perceptions of vaping in China. For example, a user asked, “smoking e-cigarettes are more likely to cause lung disease than traditional cigarettes, is it true?” Another asked, “between cigarette and e-cigarette, which one is more harmful?” with the elaboration, “a lot of people said this [e-cigarette] is more harmful, is that true?”

The popularity among the younger generations is also the result of the relatively more positive perceptions among them. Like Juul in the U.S., the industry’s marketing effort has played a large role in creating and spreading this perception. Most companies offer a wide selection of colours, designs, and flavours to attract younger generations. The vaping subculture has also emerged in society. Vaping related posts like videos of vaping performance can be seen across social media. When one browses through WeChat moments or Xiaohongshu, e-cigarettes often are displayed casually when users share their special moments of life.

Vaping videos on Chinese social media

Source: Bilibili, Vaping videos on Chinese social media

Three phases of the electronic cigarette and vape market in China

The electronic cigarette market in China has gone through three phrases. Other than the change of perceptions of vaping in China, the market’s lows and highs have also been defined by the change of regulations.

2003-2009: Rise and Fall of the father of e-cigarette

The electronic cigarette industry in China started in 2003 when the first e-cigarette was patented in China. The patent owner Han Li introduced the brand Ru Yan and became the world-renowned father of e-cigarette. At the time, his products started with a price tag of 599 RMB and even went up to 16,800 RMB. However, the marketing strategy made Ru Yan a considerable success; the company claimed to sell more than 300 thousand e-cigarettes at its peak in 2008. At this stage, the electronic cigarette industry in China primarily targeted the products as an aid for quit smoking. However, in 2009 media questioned the effectiveness of its products and products in the market with similar nature. The electronic cigarette and vape market in China suddenly deteriorated, and most of the companies turned to foreign markets.

2009-2018: Becoming a global manufacturing hub and Juul’s global trend

Between 2009 and 2018, Shenzhen relied on its well-developed electronic industry supply chain, and the cross-border business environment became the global e-cigarette manufacturing hub; the Chinese market started to revive gradually. The recent rapid development of the vape market in China should be attributed to the worldwide trend led by a specific Shenzhen-manufactured product, Juul, in the mid-2010s.

Since the emergence of American company Juul Labs (previously Pax Labs) and the launch of its product Juul in 2015, the small pod vape (pod system, pod mod) with nicotine-salt (much higher nicotine concentration than traditional vape juice) has rapidly become mainstream. The chemical structure of nicotine-salt can better simulate nicotine hit provided by tobaccos, comparing to the liquid used for traditional vape tanks. It had revolutionized the e-cigarette industry in the last five years, and its innovations have driven the industrial transformation.

Although Juul only entered the Chinese market in 2019 and was quickly removed amid the U.S. vaping crackdown, Juul inspired many of China’s mainstream brands. For example, China’s most prominent brand Relx provides products with similar concepts and technologies as Juul, and its products are in a similar price range as Juul. However, many prefer Relx because of the better user experience and a more comprehensive range of flavours it provides. Its international expansion saw huge success, even in countries where Juul has set foot in.

Vape products in China

Source: Relx, Vape products in China

2018-now: Fierce competition and regulations

Since 2018, the new technologies and the global trend have stimulated the domestic market. Many companies started to focus on the domestic market and new companies have been created every day to ride the wave. The competition has become tough in the vape market in China, and only a few companies have maintained their reputations and market shares.

Regulations are the most critical factor for the e-cigarette market. Just as in the U.S., the electronic cigarette industry in China also experienced an exceptionally rough year in 2020. The regulations in 2019 that impose stricter standards on the sector reshaped the Chinese market’s dynamic.

At the end of 2019, the authority banned the selling and marketing of e-cigarette products online. Before the ban, there was no law regulating the sales online; thus, many users purchased their devices and liquids through online shopping platforms and resellers on WeChat and Xianyu. After the ban, most users have to buy the products offline, although some resellers still offer their products on WeChat in low profile. Companies with sizeable offline presence have been more capable of grabbing market share since then.

What to expect in the future of China’s vape and e-cigarette market

The competition in the vape market in 2021 will be intense in the landscape with an excessive number of companies and a limited customer base. Pricing competition in specific categories is exceptionally fierce, especially for low-end products. However, companies like Relx and Yooz, which provide quality products with good reputations, can shrive even with their high price tags.

Through social media listening on Zhihu, we can perceive the customer loyalty of some brands. In the question “Why Relx Inifinity (the new product with the retail price of 329 RMB) is so expensive?” One user answered, “it’s quite expensive, but the design of Infinity has been improved substantially from the previous three generations. First of all, the product improved the overall performance. Relx also introduced functions like child safety lock and usage tracking via the app. It has a bigger battery, and it is capable of wireless charging… It’s worth buying despite the high price tag.”

Other than focusing on the quality of the products, the industry as a whole still needs to make attempts to enlarge the customer base to truly explore the potential of the Chinese market, even when online advertising ban imposes great difficulties.

The industry has gone too far to hook adolescences on nicotine, which has given vaping a negative reputation. Maybe now, vape brands take another angle of converting smokers to vapers. However, this means facing the challenge of changing consumer habits in a market that’s largely older men.

Author: Guosheng Cai

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