By Timothy S. Donahue

Top Takeaways:

• Capacity freeze ordered: China’s tobacco regulator directed vape makers to suspend new plant construction and expansion unless clearly justified.
• No workaround allowed: Companies are barred from disguising vape production through other product lines or shifting quotas to unlicensed firms.
• Industry consolidation favored: Regulators allow mergers to reorganize output, signaling a push toward tighter production control.

China’s State Tobacco Monopoly Administration (STMA) has issued a formal notice ordering e-cigarette manufacturers to suspend new investments and production expansion projects as regulators seek to curb intensifying price competition and mounting overcapacity in the sector.

In the notice released Friday, the STMA stated that the industry’s “capacity utilization rate is at a high level,” signaling concerns that excess production is fueling aggressive pricing by manufacturers.

The directive instructs producers to halt construction of new e-cigarette manufacturing facilities and to suspend new investment projects unless companies can demonstrate that additional capacity is “really necessary” and is primarily for export manufacturing.

The notice also warns companies against circumventing the restrictions by building facilities ostensibly for other products that, in practice, produce e-cigarettes. Regulators specifically prohibited producers from shifting supply quotas to unlicensed companies or expanding output through disguised investment in adjacent product categories.

Under the guidance, manufacturers are permitted to reorganize capacity through mergers and consolidations, suggesting that Beijing may favor industry rationalization over outright expansion. The administration further emphasized that approved e-cigarette production lines must be clearly distinguished from heated tobacco product lines and other smoking devices, reinforcing tighter category controls.

In 2022, China brought its e-cigarette industry under formal tobacco monopoly control, placing the sector under the authority of the STMA and subjecting manufacturers to licensing, production quotas, flavor restrictions, and national standards. Domestic flavored e-liquids were banned, leaving tobacco flavor as the only permitted option in the Chinese market, while export production remains a major revenue stream for manufacturers.

Since the regulatory overhaul, China has implemented a quota-based production system, centralized trading platforms, and strict traceability requirements. The latest notice appears to reflect regulatory concerns that capacity expansion — particularly among export-focused manufacturers — has outpaced global demand, thereby contributing to pricing pressure.

China remains the world’s largest producer of vaping hardware and components, supplying a large share of the global market.

The STMA did not announce penalties in the notice but made clear that compliance with production limits and licensing rules will be strictly enforced.