By Timothy S. Donahue

Top Takeaways:

• China’s tobacco regulator proposed strict limits on new vaping product investment and capacity expansion.
• The draft targets “involution-style” price competition and overproduction.
• Manufacturers would face stricter output controls, export compliance regulations, and capacity discipline.

China has released draft measures to tighten controls on the production and investment in e-cigarette and vaping products, as regulators seek to curb excess capacity, address intensifying price competition, and strengthen oversight of a sector operating under a state-controlled monopoly.

China’s national tobacco regulator, the State Tobacco Monopoly Administration (STMA), issued the draft policy Thursday, following a State Council opinion released earlier this month that placed e-cigarettes and nicotine pouches under stricter regulatory supervision.

In the draft document, regulators cite persistent structural problems in the e-cigarette industry, including slow exit of outdated capacity, imbalanced production structures, and ongoing export-related compliance issues. The policy explicitly identifies so-called “involution-style competition”—a term used in China to describe self-reinforcing, low-margin competition—as a central risk to the sector’s stability.

To address this, the draft proposes sweeping restrictions on investment and capacity expansion. Under the proposed rules, no new e-cigarette production projects would be permitted, and any relocation or reconstruction of existing facilities would be prohibited from increasing approved production capacity. The document further states that, in principle, companies would also be barred from expanding output through on-site technical renovations.

The draft also strengthens oversight of production capacity management. Manufacturers would be required to operate strictly within their approved capacity limits, and any proposed adjustments would be subject to additional regulatory review and updated licensing. Regulators said tighter capacity discipline is necessary to prevent oversupply and destructive price competition.

Although expansion would be constrained, the policy permits mergers of production sites among compliant companies, provided the consolidation improves efficiency without increasing overall capacity. Regulators said the approach is intended to promote orderly restructuring rather than unchecked growth.

Production planning would also be subject to tighter control. The draft requires manufacturers to set annual output plans based on confirmed market orders rather than speculative production, to reduce excess inventory and discourage a “race to the bottom” in pricing.

The policy introduces enhanced scrutiny of underperforming or noncompliant enterprises. Companies that fail to meet national standards for product quality and safety, operate with persistently low capacity utilization, or have a record of regulatory violations could be placed under heightened supervision and required to reduce production capacity.

Export compliance is also prominently featured in the draft. E-cigarette manufacturers would be expected to assume full responsibility for regulatory compliance throughout their entire export supply chain, reflecting longstanding concerns by Chinese authorities about mislabeling, improper routing, and non-compliant overseas sales.

The proposed measures are open for public comment until Jan. 5. After that, regulators may finalize and implement the policy.

China is the world’s leading producer of e-cigarettes, accounting for more than 90% of global output, according to Bloomberg. Customs data from Beijing show that the United States remains China’s largest export destination, representing over 38% of e-cigarette shipments in the first 11 months of 2025.

The draft policy signals China’s continued effort to tighten administrative control over e-cigarettes and related nicotine products and reinforces the sector’s integration into the country’s broader tobacco monopoly system.