The local industry had operated within a grey area for years. A new bill which went into effect last month, will ban 122 vape flavours as proposed by the State Tobacco Monopoly Administration (STMA), including numerous fruit and alcohol flavours. The draft rules also amend the country’s tobacco monopoly, extending it to e-cigarettes, which forces local businesses to register with the tobacco authority.
Moreover local manufacturers must now obtain an additional licence to prove they are in possession of sufficient funds for production, and an adequate facility and equipment that meet the set standards. Subsequently the STMA has just published a guidance outlining the process for Chinese e-cigarette manufacturers to obtain the required manufacturer licence.
An article on The National Law Review summarised the major requirements for obtaining the licence as follows:
“Product Categories
Products subject to the e-cigarette manufacturer license in China are divided into the following three categories:
- E-cigarette products, i.e., cartridge, device, and cartridge and device for combined sales;
- E-atomization materials (e-liquids); and
- E-cigarette-use nicotine.
From the application form, the applicant can choose from a product type and specify whether the manufacturing of the product is for domestic sales or for export. Note that while one may choose multiple products at the same time, it is not permitted to choose across categories. For example, for a single application, the applicant is not allowed to choose both the cartridge and e-liquids (two separate applications would be required), but it is possible to choose the cartridge for domestic sales and the device for export in the same application.
We further note that, under the Management Rules for E-Cigarettes, “device” includes not only e-cigarette devices but also the device of “heated cigarettes,” i.e., heat-not-burn (HNB) products. Thus, while HNBs are regulated in China as traditional cigarettes rather than e-cigarettes, the manufacturing of a HNB device in China, whether it is for domestic sales or for export, also is subject to the same manufacturer license requirements as e-cigarettes. There is a separate product category for HNB devices in the application form for the manufacturer license.
Application Materials
There are many application materials required to be prepared for the manufacturer license application, which we briefly summarize as follows:
- Application form
- Investor information form
- Business license, etc.
- Proof of suitable funds, production and sales information, etc., including the balance sheet, income statement, cash flow statement, and production and sales statistics for the past three years
- Materials related to the required technology and equipment:
(1) Ownership certificate or lease agreement for the production site
(2) Description of the surrounding environment of the production site, infrastructure, investment scale, etc.
(3) Production process and quality management materials, including:
- List of main production equipment and testing instruments
- Production capacity measurement report and explanatory materials (including factory’s general floor plan, process equipment layout, worker number, labor productivity, flow of process, process/line capacity, effective operation rate, etc.)
- Main quality control points and control measures (separate descriptions of the production process, work-in-process, and products)
- Product quality testing (including testing parameters, testing systems, etc.)
- Production process and relevant standards
- Power of attorney (when applicable)
- Other materials, including:
- Documentation for trademark registration in China
- For the production of e-liquids: License for operating dangerous chemicals, materials explaining the sources of ”e-cigarette use nicotine” used in the past three years, including the total amount of e-cigarette use nicotine purchased (kg), the purchase batch, the name of the supplier, purchase time, purchase quantity (kg), source information (importing country/domestic production), purity information (mass fraction percentage)
- Applicants for export must submit materials explaining the export business and the scale of export, including the customs declaration forms for the past three years
- List of application materials
As shown above, the most important application materials for e-cigarette manufacturers are those about the production process and quality management. Notably, there is an extra burden for manufacturing e-cigarettes for export, as the applicants must provide information about the export business for the past three years. However, the requirement for trademark registration in China seems impractical for manufacturing e-cigarettes solely for export when the products are not sold on the Chinese market. Although it does not appear to us that STMA intended to impose the Chinese trademark registration requirement on manufacturers of e-cigarettes solely for export, it may be prudent for an affected applicant to seek clarification from the authority.
Timeline
Chinese companies can start applying for a manufacturer license on May 5, 2022. Those manufacturers that have registered with the market regulation authority before November 10, 2021, and have completed e-cigarette manufacturer information reporting in December 2021, (a procedure we covered in a prior article) must apply before September 30, 2022. Other applicants can apply only after September 30, 2022.
The time limit for reviewing the manufacturer license application is 20 working days, which can be extended by 10 working days. However, the time for any additional hearings or testing, etc. that may be needed is not counted within the time limit.
In sum, there are already quite detailed rules for how to obtain the e-cigarette manufacturer license in China. At the same time, there are vague areas, such as the trademark registration requirement.”
