Exploring Shenzhen’s “Foggy Valley”: The e-cigarette industry is experiencing life and death pains

Original title: Actual exploration of Shenzhen’s “Foggy Valley”: it accounts for 90% of the world’s e-cigarette production capacity. Existing companies laid off 70 people. Industry insiders: I don’t know how many small factories have died!

In two remote streets, Shajing and Fuyong, in Baoan District, Shenzhen, there are 600 e-cigarette manufacturers in a block of more than ten square kilometers, producing 90% of the world's e-cigarettes. It is a veritable "fog valley" in the world. Now, "Foggy Bottom" seems to have suddenly stopped breathing.

The Tobacco Monopoly Administration and the State Administration for Market Regulation issued the "Notice on Further Protecting Minors from E-cigarettes" on November 1, requiring various market entities not to sell e-cigarettes to minors. , urging e-commerce platforms to close e-cigarette stores and remove e-cigarette products from the shelves.

As e-cigarette orders decrease or even “partially disappear”, from brand owners to OEMs, and from OEMs to upstream suppliers, the entire industry chain of the e-cigarette industry is experiencing a severe life and death pain.

Barbaric growth

Over the years, the e-cigarette industry has grown wildly in Shenzhen. Because of the strong demand, the e-cigarette industry is a typical seller's market. Orders continue to flow from all over the world to two streets in Bao'an, Shenzhen, where they become production capacity. Production capacity expands in waves, and people follow the rhythm of market demand. Go forward.

Relying on the rapid and strong demand for e-cigarettes in Europe and the United States, Shenzhen’s e-cigarette industry has developed step by step. Many factories have grown from a few hundred people to 2,000 people at their peak. Until now, they still focus on foreign trade.

Shenzhen Huaqiangbei Electronic Cigarette Sales Store

This kind of factory can be easily found in a private house in Shajing and Songgang streets. Factories, large and small, are located in these two streets, and some are still in Dongguan. They are among the many high-rise buildings and dense urban villages. Some occupy a small yard in an industrial area, and some occupy a corner of an office building. You can’t tell from the names that they are electronic cigarette manufacturers. Their names contain the words “technology,” or “mist” or “steam,” which are nicknames for electronic cigarettes. They are like joint codes that only people in the industry can recognize. They hope that people from outside the industry will never come to them if they don't have to. There is no centralized e-cigarette industrial park here, and there is no big brother taking the lead. Everyone basically does their own business.

Wang Xiaohua has been engaged in e-cigarette battery sales for 8 years. In the first nine months of this year, the factory where he worked had a year-on-year increase of 30%, and life was very good.

However, as the industry turns cold, the e-cigarette industry is like the track suddenly narrowing, and the entire train tilts uncontrollably and derails.

“It’s like a happy person suddenly gets water thrown in his face.” Wang Xiaohua said.

There is a transmission process in the market. The first is the brand side. They have direct contact with the market. If the business is good, they will send orders to the processing factories. Otherwise, the orders will be reduced; then the processing factories, then the batteries and cigarettes. Upstream of oil, plastics, data lines, etc.

The current impact transmission link is still mainly in the processing plant. A reporter from the Securities Times came to the factory of McQuay, a leading domestic e-cigarette processing company, on Dongmei Road, Fuyong Street, Baoan District, Shenzhen. This is a new factory area that started production only last year. It is part of a series of new factories at McQuay. The number of workers here increased to more than a thousand in one year, and now it has dropped to five or six hundred.

Now employees take a break at 5:30 pm and work 8 hours a day, compared with 14 hours before. Because they are not allowed to work overtime, the workers can only receive a basic salary of only two to three thousand yuan. With this amount of money, it is difficult to support themselves in Shenzhen. Some workers can't bear it and leave on their own.

This factory has not hired anyone for two months. There used to be six people recruiting employees at the door.

Ou Junbiao, chairman of the E-cigarette Industry Committee of the China Electronics Chamber of Commerce, described the current miserable situation of small and medium-sized e-cigarette companies as "dead bodies everywhere".

The object of his observation is the leading company that produces e-cigarettes. He roughly estimates that more than 10,000 people are unemployed. He believes that this situation is very serious because leading companies did not accept small and medium-sized orders before, but now because orders are not saturated, they have to make hundreds or thousands of orders. If the leading companies are not saturated, small and medium-sized enterprises will only be left with corpses everywhere.

“I don’t know how many small factories have died behind this.” He said.

Because a top-ranked e-cigarette company laid off 1,500 employees, the laid-off employees were dissatisfied. It also attracted the attention of the local street office, which went to various e-cigarette companies to investigate and maintain stability.

Luo Haibo, general manager of Shenzhen Zhuomeirui Technology Co., Ltd., welcomed a wave of government workers at the beginning of this month. He also sent out a questionnaire to write down the reasons for the changes in the industry and hoped that the company would pay wages on time. Luo Haibo said that the company must pay wages on time, but if there are no orders, the employees have left. At its peak, their company had more than 2,000 employees, but now there are only 500 left.

Ou Junbiao’s own factory originally had more than 1,000 people, but now it has been reduced to more than 300 people.

There are rumors that 40,000 people in the Shajing area will be affected, and Luo Haibo estimates that there must be more than 40,000 people. He said that many industries have been in recession in recent years, but e-cigarettes are better. There are electronic cigarette factories everywhere outside Shenzhen, and outsiders are constantly breaking in, but now the situation has suddenly changed.

Double-click inside and outside

Han Li, a traditional Chinese medicine practitioner from northwest China, invented e-cigarettes in 2004, thus creating an industry. Han Li is a veteran smoker. His original intention of inventing e-cigarettes was to treat smoking addiction and reduce the harm of traditional cigarettes. The main cause of cigarette addiction is nicotine, and the harm of cigarettes is mainly due to the tar and carbon monoxide produced by burning tobacco leaves.

Although the first e-cigarette was invented, produced and sold in China, the Chinese market has been difficult to crack. At first, brands focused on the concept of quitting smoking. Later, whenever they promoted quitting smoking, they would hit a dead end.

Later, e-cigarettes entered the "big smoking" era. You can add e-liquid by yourself. There are many types and shapes. However, this kind of product is only liked by experienced enthusiasts, and it is easier to use in nightclubs and other scenes. Can be promoted widely.

The revolutionary change came from the tobacco giant JUUL. The company invented "nicotine salt" and "pod cigarettes" appeared. The taste and shape changed, and they were convenient and fast. Ordinary consumers were also involved. Small cigarettes occupy most of the market.

E-cigarettes seem simple, but in fact the industrial chain is very long and the division of labor is very detailed. Some products have thousands of types and require the cooperation of many links. In 2018, a lot of capital was invested in the e-cigarette industry because they saw the huge potential of pod cigarettes and JUUL’s valuation of tens of billions of dollars. Driven by these capitals and the changes led by some outsiders, China's e-cigarette market has been opened up. The market is growing rapidly, especially attracting young people.

The changes started in September this year.

The first is the US market. On September 15, local time, New York State Governor Andrew Cuomo announced an “emergency executive order” banning the sale of flavored e-cigarettes. Trump has announced that he will ban the sale of non-tobacco flavored e-cigarette products to control the trend of youth vaping. Trump said at the time: "We are going to enact some very strong regulations to prevent teenagers from being addicted to nicotine."

The United States is the world's largest e-cigarette market and is also an industry benchmark. After the U.S. market froze, , many are also waiting and watching.

The domestic market has also encountered changes. The Tobacco Monopoly Administration and the State Administration for Market Regulation issued the "Notice on Further Protecting Minors from E-cigarettes" on November 1, requiring various market entities not to sell e-cigarettes to minors and urging e-commerce platforms to shut down e-cigarettes. Cigarette shops and removing e-cigarette products from their shelves.

This is a thunderous blow. Originally, the sales momentum of domestic e-cigarettes was good, which could relieve some of the pressure, but now it is like the domestic and foreign markets are not doing well.

Previously, many brands prepared a lot of products in preparation for "Double 11". It is said that a large e-cigarette company expects "Double 11" sales to exceed 100 million yuan.

In order to adapt to the business growth of various new domestic brands, Maxwell has been expanding and even built a new factory specifically for a certain brand. Industry insiders revealed that these domestic orders are now gone, and factories are taking a break.

Practitioners are also watching the actions of the US and Chinese governments. Luo Haibo believes that the United States will take action this week and will definitely relax controls on e-cigarettes.

Many domestic practitioners said that the problems in the U.S. market have nothing to do with e-cigarettes themselves. The main reason is that e-cigarettes contain cannabis. In order to dilute the cannabis oil, other diluents are also added, which are harmful to the body. Have adverse effects. They believe the United States will get to the bottom of these issues. Last week, the United States announced that vitamin E acetate, a potential toxin, was detected in biological samples from patients with lung injury. These findings provide direct evidence that vitamin E is the primary cause of lung damage and is occurring in patients throughout the United States. On the 11th, Trump stated on social media that he would meet with e-cigarette industry advocates to discuss future plans.

Internally, when Luo Haibo came to the sub-district office for investigation, he filled in the company’s demands on the investigation form, saying “don’t be one-size-fits-all.”

Reporter’s Observation: There is no debate about smoking control, standards are the key.

Are e-cigarettes an electronic product, similar to cigarettes, or a drug? In fact, everyone has different perceptions and there is no unified identification. However, the companies visited by the reporter all believe that it is necessary to control e-cigarettes, but the key is to have standards and not to excessively enforce the law during the management process.

Just after the government required that e-cigarettes cannot be traded online, many places began to require offline e-cigarettes to be removed from the shelves. There was excessive enforcement, including Nanjing, Chongqing, Chengdu, Shiyan and other places, which mandated business operations. No one can sell e-cigarettes. Later, the superior department issued an urgent notice, including "Do not force e-cigarette products to be removed from the shelves to prevent negative public opinion."

In response to the problem of excessive law enforcement in many places, Ou Junbiao, chairman of the E-cigarette Industry Committee of the China Electronics Chamber of Commerce, said that they have submitted reports to higher authorities in the hope of protecting the legal living space.

Zhuang Runsen, vice president of the Shenzhen Tobacco Control Association, said in an interview with a reporter from the Securities Times that e-cigarettes contain nicotine and can be addictive. In addition to nicotine, there are also some ingredients that are not good for health. These exist objectively. The spray If this form is not harmful, it is okay to use it as a toy, but now it has misled minors and will make smokers younger.

Zhuang Runsen believes that Shenzhen included e-cigarettes in the anti-smoking regulations because of the harmfulness of e-cigarettes. In fact, e-cigarettes have been greatly developed in recent years because all countries have banned smoking. A loophole was taken advantage of in publicity.

He believes that the government’s ban on online sales of e-cigarettes is mainly to prevent minors from purchasing them. He believes that there is no problem with traditional cigarettes being sold offline, and so can e-cigarettes. "The government has not yet controlled the sales of e-cigarettes. It is more from the perspective of protecting minors."

Xiang Jie, deputy general manager of Zunyipin, also believes that the government will issue a notice later not to over-enforce the law. It’s not a matter of beating this industry to death with a stick, but it’s a matter of degree.

Regarding the sudden introduction of policies by the government, an executive from a leading e-cigarette company said that regulatory policies must be compliant and scientific enforcement should not be excessive and one-size-fits-all. It must be scientifically regulated. For example, online sales must not be allowed and all parties must be provided. Buffer time, otherwise companies and employees will suffer great losses, and consumers also have rights and interests that need to be protected. If one or two months are given to digest it, all parties will have time to respond, and the government can control it in place.

In China, some groups have become loyal consumers of e-cigarettes. Yesterday, the reporter saw a pair of young lovers coming to the RELX store in the Huaqiang Electronics Building in Huaqiang North, Shenzhen. They had already I have been smoking e-cigarettes for several years, but since I couldn’t buy them online, I went to the store to buy them. RELX has 9 stores near Huaqiangbei. Yesterday afternoon, the reporter saw a Hong Kong tourist named Xu at the scene. He came from Hong Kong to buy e-cigarettes. He said that the e-cigarettes he smoked before were too expensive. His friends came to Shenzhen to buy e-cigarettes. I buy more than ten boxes at a time.

Theoretically, after online demand is suppressed, it will shift to offline. There is currently no data to support it. Most demand is difficult to convert offline, and physical store coverage is limited and the quantity is not large.

People in the industry are calling for the rapid introduction of standards so that things can be done according to the standards.

In an interview with a Securities Times reporter, Ou Junbiao said that he hopes that Shenzhen e-cigarette manufacturers and industry associations will have the opportunity to participate in the formulation of industry standards.

He said that currently they have no opportunity to participate in the formulation of industry standards, and there is no organization to consult their opinions and opinions. The E-cigarette Industry Committee was established in 2017, and the output of member companies accounts for more than 90% of the e-cigarette export share.

There are no public standards in the e-cigarette industry, and companies conduct research and development based on market demand. It is said that there are currently tobacco-affiliated agencies formulating standards.

Industry insiders say that the most critical part of the industry standard is e-liquid, and it will also be encountered in other fields such as batteries. The standard is relatively easy to formulate, and other industry standards including plastic casings are also easy to comply with other industry standards. However, the core part of e-cigarettes, namely the e-liquid components and atomization standards, are difficult to learn from.

There is another important issue here. The components of e-liquid may be harmless, but they may be harmful after atomization. In addition, it is not scientific to talk about harm without dosage, so it must be compared with ingestion. quantity to correlate. However, there has been a lack of research in this area in China. Some industry insiders said that they often use foreign research as a reference.

In 2017, the China Electronics Chamber of Commerce and E-Cigarette Industry Association formulated the "General Specifications for Electronic Cigarette Apparatus Products" and the "Specifications for Electronic Cigarette Atomization Liquids."

"I hope that the standards will be formulated quickly so that our industry will strictly abide by them and even do better than the standards. In such a large industry, we will not be given an identity. If we have an identity, we will not be in this industry now." The wind is like rain, and we should see that e-cigarettes are worth 1 trillion yuan or even 10 trillion yuan to China," Ou Junbiao said.

(Source of article: Securities Times) Solemn statement: The purpose of publishing this information is to spread more information and has nothing to do with the position of this site.