Hong Kong’s E-cigarette ban pushes its re-export business to the verge of distinction

Legislative Dilemma

Since February this year, the Hong Kong Government has submitted a draft amendment to the SAR Legislative Council to prohibit the import, manufacture, sale, dismantle and package, and promotion of new tobacco products such as E-cigarettes, causing a heavy blow both on China’s E-cigarette export and Hong Kong’s re-export industry.

In recent years, many Chinese E-cigarette manufacturers have shipped their products to the warehouses of Hong Kong logistics companies. After being dismantled and packaged, they will be re-exported to foreign countries. However, the Hong Kong government’s proposed amendments clearly prohibit dismantle and package in Hong Kong. In addition to many domestic e-cigarette manufacturers transferring the distribution business to Macao, it also affects Hong Kong’s exports. Related companies have lost huge business, and many companies have laid off employees and closed their business.

Although the total ban on E-cigarette has been suspended, a large number of bankruptcies in Hong Kong’s re-export industry leading an advocation of exemption of the dismantle and package of E-cigarettes to save the industry.

The Hong Kong Food and Welfare Bureau gazetted in February this year to propose amendments to prohibit the import, manufacture, sale, and distribution of E-cigarettes and heat-not-burn products. Even if the draft is subject to review and voting by Legislative Council Members, as the public opinion grows, and the early enforcement of some customs, the companies involved in the dismantling and package of E-cigarette products in Hong Kong have been pushed to the very verge of extinction.

Collapsing re-export business

The head of a warehousing and logistics company in Hong Kong Chen once revealed to the Hong Kong media that Shenzhen is the main producer of E-cigarette products in the world. If the manufacturer exports the products, he can obtain a certain proportion of export tax rebates according to the total value of the goods. However, because the volume of foreign purchases varies, there are also many small orders. If the manufacturer declares the products for each order separately, they will suffer more fees.

Therefore, the consistent practice of these manufacturers is to apply for a customs declaration form in China, and then transport a large number of products to the Hong Kong warehousing and logistics company and dismantle and package according to the order, and then re-export to foreign countries. “For Chinese manufacturers, this method not only saves costs, but also earns more export tax rebates, and Hong Kong has a relatively frequent shipping schedule, so it will drive warehousing, spin-off and re-export business. But when the “ban” comes out, the whole industry is in peril!”

Chen explained that although the draft allows e-cigarette products to be “re-exported”, it also prohibits to “dismantle and package” in Hong Kong. Many Chinese manufacturers have learned that Hong Kong will ban relevant procedures after passing the law. It will stop the cooperation with the Hong Kong company and transfer it to the relevant companies in Macau for the re-exported business. The trucks will then be transported to Hong Kong via the Hong Kong-Zhuhai-Macau Bridge. “Traveling directly to the container terminal, we don’t need us.”

from January to April this year, the amount of Hong Kong’s re-export has dropped from $206.16 million at the beginning of the year to $67.82 million. The lowest point of the export data is also the February of the Hong Kong government’s proposed amendment.

Chen Minhui, chairman of the Hong Kong Electronic Cigarette Association, said that before the proposed amendments, Hong Kong’s spin-off, packaging, and re-exporting e-cigarette business flourished. There were three large and ten small companies with a total monthly turnover of over HK$1 trillion. However, in recent months, many companies have closed down, or they have been struggling to survive with other businesses. It is estimated that the monthly turnover will plummet to about HK$100 million. “One of the companies has about 180 employees. Recently, there have been many layoffs. There are only about 20 people left.”

He stressed that all warehousing and spin-off E-cigarette products will be exported and will not be sold in Hong Kong. The relevant business should not be banned, and many people are unemployed. “It is better to regulate E-cigarettes than to ban them.”

Zhang, who is head of a warehousing and logistics company, also said that he did not object to the ban on importing, manufacturing and selling e-cigarettes, but should waive the dismantle and package because the products were not sold locally. “I hope the government can listen to the voice of the re-export industry and guarantee the survival of the industry and the workers’ jobs!”

Uncertain future

In response to the industry’s request for exemption, the Food and Environmental Hygiene Department spokesperson said that if the new tobacco products are allowed to be re-exported in Hong Kong, a comprehensive law enforcement system is needed to monitor the entire supply chain. “But related law enforcement work requires too many resources and will put unnecessary pressure on the overall law enforcement work.”

In general, Hong Kong’s re-export industry related to e-cigarettes is facing a huge crisis. On the one hand, with the rising enthusiasm of the E-cigarette ban, most of the e-cigarette re-export and spin-off business in Hong Kong has fallen sharply; on the other hand, since the largest export market for Chinese e-cigarettes is still the United States, China-US trade war The tariff issue has also led many Chinese manufacturing industries to turn to more advantageous logistics solutions.

Although the E-cigarette ban in Hong Kong has not yet passed, and Trump has recently announced that it will stop tariff increases on China’s exported products, no matter which of the above unless a clear result comes out, the manufacturer will not return to Hong Kong. After all, the current situation of the ban and trade war is only “temporary.”

Further reading: E-cigarette struggles amid escalating china-us trade war

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