Over the past decade, China’s e-cigarette industry has surged globally, driven by its strong manufacturing capabilities. Cities like Shenzhen and Dongguan have rapidly risen to become the “world’s factory for e-cigarettes,” with thousands of e-cigarette products being exported worldwide, creating a remarkable industrial legend. Cependant, the tides of time are ever-changing, and the current international environment is undergoing fundamental shifts—global regulation is becoming increasingly strict, supply chain competition is intensifying, public health concerns are rising, and geopolitical risks are spilling over. These signs indicate that the e-cigarette industry is at a critical turning point, moving from “gray growth” à “compliance survival.”
For those enterprises still deeply entrenched in the “blurred arbitrage” trap, if they do not adjust their strategies and achieve transformation promptly, they will not only lose market share but also face severe blows in the upcoming “geopolitical storm,” potentially leading to market elimination.
1. Blurred Arbitrage: The Survival Strategy in the Early Stages of the Industry
“Blurred arbitrage” refers to the practice of enterprises exploiting regulatory ambiguity, lack of standards, and delayed supervision to gain benefits by operating on the edge of rules. In the early stages of the e-cigarette industry, due to the incompleteness of relevant laws and regulations, this gray-market approach became a “shortcut” for many enterprises to enter overseas markets:
- Bypassing regulation through “OEM + dropshipping”: Some enterprises produced products for overseas brands and used dropshipping channels to bypass strict market access regulations in those countries.
- Exploiting policy vacuums for sales: Some firms deliberately blur product categories to exploit policy gaps. They seize unclear rules to gain sales, essentially playing at the edge of compliance. This approach, though opportunistic, risks regulatory backlash and damages industry credibility.
- Vague information processing: Avoiding detailed data collection and component labeling to evade regulatory scrutiny.
- Over-reliance on private channels: Excessive dependence on private channels such as WeChat groups and WhatsApp to build hidden overseas sales networks, reducing exposure to public market supervision.
This “blurred arbitrage” strategy indeed helped some brands achieve breakthroughs from zero to one in the early stages of the industry, accumulating a certain market share and capital in a short period. Cependant, as the industry developed and the international environment changed, the drawbacks of this approach became increasingly evident, and its sustainability was greatly reduced.
2. The Gray Zone: Le “Slow Poison” That Threatens the Future of the Industry
What once seemed to bring short-term benefits has now become a “time bomb” that hinders the development of the industry, with its harms spanning multiple levels:
(1) Escalation of Overseas Market Blockades
Major economies around the world are strengthening their regulation of the e-cigarette industry, with a series of strict policies and regulations being introduced:
The U.S. Food and Drug Administration (FDA) has significantly strengthened PMTA (Pre-Market Tobacco Application) reviews. Products that fail to pass certification are directly removed from the market, causing many Chinese e-cigarette brands to lose their entry tickets to the U.S. market.
The EU has implemented the TPD (Tobacco Products Directive) new regulations, which strictly control the components, packaging, and advertising of e-cigarettes, limiting their market promotion and sales.
Australia and other countries have taken extreme measures to ban the sale of nicotine-containing e-cigarettes, completely halting the market expansion plans of related enterprises.
En outre, customs clearance, payment channels, and advertising platforms have all set limits, creating numerous obstacles for the overseas development of e-cigarette enterprises.
(2) Collapse of Brand Credibility
The gray export model severely damages the credibility of brands. Consumers often develop a sense of distrust toward products with unclear information and unknown sources, making it difficult for enterprises to establish a good brand image. The loss of brand credibility further affects the enterprise’s financing, cooperation, and localization efforts, making it difficult to escape the label of “second-rate brands” and become a true “legitimate brand.”
(3) National-Level Industry Risks
China’s e-cigarette supply chain is highly concentrated, which increases its exposure to international scrutiny. Once linked to teen addiction, illegal additives, or data leaks, it may quickly be seen as a public safety threat. Par conséquent, global regulators could label the entire industry a geopolitical risk. Like Huawei, DJI, and TikTok, it may then face unfair restrictions abroad. Donc, the industry must proactively address these vulnerabilities to remain competitive.
3. The Crisis of the “Easily Targeted” Industry in the Geopolitical Storm
China’s e-cigarette industry has distinct “easily targeted” characteristics, making it particularly vulnerable in the current complex international environment:
- High dependence on the export market: The U.S. and European markets account for the vast majority of China’s e-cigarette exports, making the market structure overly single. Once these regions change their policies, the entire industry will suffer a major impact.
- Lack of supply chain diversity: China concentrates most of the industry’s manufacturing. Cependant, it lacks a global supply chain layout. This imbalance increases exposure to trade frictions. De plus, geopolitical tensions can disrupt production and exports. Donc, the industry must diversify to reduce risk.
- Distress from sensitive issues: The e-cigarette industry involves sensitive areas such as public health, adolescent protection, and data privacy, which are easily the focus of international public opinion and regulatory policies. A slight misstep can trigger international disputes.
- Lack of international discourse power: China’s e-cigarette industry lacks say in global rules, so others often label it non-transparent and risky. This perception weakens its global competitiveness and places it in a passive role. To change this, the industry must engage more in setting international standards.
In the context of the U.S. and Europe accelerating local production and continuously tightening import reviews, if China’s e-cigarette industry continues to stick to the old path of “quantity-driven arbitrage,” what awaits it will not be market dividends, but stricter policy sanctions.
4. Compliance Upgrade: The Only Way Out for the Industry
In the face of such a challenging situation, e-cigarette practitioners must abandon the mentality of taking risks and firmly embark on the path of compliant development. Compliance is not an additional burden on enterprises’ costs; rather, it is a “shield” against risks and a “ticket” for participating in future global competition. The industry’s development should also undergo a strategic transformation, shifting from pursuing “speed” to focusing on “quality”, and from “making quick money” à “building a brand”. As the head of a well-known e-cigarette manufacturing company said, “In the current market environment, compliance is not a choice but a must-answer question.”
Currently, China’s e-cigarette industry is at a critical period of “collective turning.” Those who can complete the compliance upgrade first will seize the initiative in the future market competition and gain development momentum.
5. Say goodbye to luckiness, Embrace Transformation: The Coming-of-age Ceremony of Industry Development
In the context of deep restructuring of the global industrial chain, le “blurred arbitrage” has become a “time trap” that constrains the development of the industry. Enterprises that continue to indulge in it will become the “targets” eliminated in this industrial transformation.
The e-cigarette industry must undergo a profound cognitive upgrade and commercial transformation. Only by moving toward compliance can it embrace the future; only by taking responsibility can it stand firmly in the international market. We look forward to more enterprises adopting a strategic vision to layout the future, fully leveraging China’s e-cigarette industry’s “manufacturing advantage” and transforming it into “brand trust,” jointly promoting the healthy, orderly, and sustainable development of China’s e-cigarette industry and writing a new chapter of brilliance in the international market.