The shares of RLX Technology, China’s largest e-cigarette brand, were trading significantly lower in New York on Monday, after Beijing signalled it would overhaul rules governing e-cigarettes and new tobacco products.
Draft regulations posted online by China’s Ministry of Industry and Information Technology suggest it will seek to regulate these products similarly to ordinary cigarettes. The ministry is seeking public comments on the draft regulations until April 22.
RLX’s shares were trading 40 per cent lower on the New York Stock Exchange as of about 10am local time, even as the benchmark S&P 500 index was trading higher.
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The implications of the draft regulations could be wide-ranging as, with an estimated 300 million smokers, China is considered the world’s largest market for tobacco products.
RLX raised US$1.4 billion during its initial public offering (IPO) in January this year. It sold 116.5 million shares with a target price of between US$8 and US$10 a share. Its successful market debut turned its 39-year-old founder, Wang Ying, into a billionaire overnight with an estimated net worth of US$24.8 billion.
But tobacco companies are increasingly facing scrutiny from regulators in China. In November 2019, the country banned the online sales of e-cigarette products to prevent minors from buying them.
The World Health Organization has also warned that e-cigarettes are bad for users and bystanders exposed to fumes, and that they can harm fetuses and affect teenagers’ brains. This warning is a direct blow to the e-cigarettes industry’s claims that vaping was less harmful than ordinary cigarettes.
In September last year, RLX unveiled a new bioscience laboratory in Shenzhen to study the health effects of vaping. The lab will investigate the short and long-term behavioural impact of e-cigarettes compared with traditional cigarettes using 3D printed models of human lungs, RLX said. It will also examine the impact of RLX products on animal cardiovascular, respiratory and nervous systems by testing them on mice.
While cigarette use is likely to decline by 2050 in a number of countries, including the United States, parts of Europe, Australia and many countries in Latin America, according to a report published by Citi this month, it will continue to be common in countries such as China, France and Russia.
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