Key Points
- Industry-wide cap: The directive signals that total e-cigarette capacity should not increase, while endorsing consolidation and site integration.
- Verified capacity system: Firms are barred from exceeding approved capacity and annual production scale.
- Geographic clustering: Production is encouraged to concentrate in regions with stronger industrial foundations.
- Export documentation: Exporters will be required to submit proof that products comply with destination-market laws and regulatory requirements.
- Flavor naming limits (domestic): Domestic products cannot use dessert, candy or fruit flavor names.
2Firsts, Feb. 13, 2026, Shenzhen
China’s State Tobacco Monopoly Administration (STMA) has issued a directive aimed at further implementing e-cigarette industrial policy and promoting a “dynamic balance” between supply and demand, marking another step in the country’s tightening oversight of the tobacco and nicotine sector since late 2025.
The notice, addressed to provincial tobacco monopoly bureaus, states that it seeks to standardize industrial order, curb “involution-style” competition, prevent overcapacity risks and strengthen compliance among e-cigarette-related manufacturers. It applies to e-cigarette products, e-liquids and nicotine used for e-cigarettes.
What the Directive Does
Investment and Expansion Controls
The directive reiterates that e-cigarettes fall under China’s “restricted” industrial policy classification. New greenfield projects are prohibited. Relocation or resumption projects may not increase capacity. On-site technical upgrades are generally barred from expanding output unless strict conditions are met, including high utilization, sustained demand and compliance with safety, environmental and regulatory requirements.
It also prohibits disguised expansion, including unauthorized increases in production lines or outsourcing core manufacturing steps to unlicensed entities.
The notice additionally states that heated tobacco device (HNB) production lines and their verified capacity must be strictly separated from e-cigarettes, and must not be mixed or double-counted.
Verified Capacity and Annual Scale Management
Regulators will implement a verified-capacity management system under principles described as “fair, open, differentiated, steady and orderly.” Firms are prohibited from operating beyond approved capacity. Adjustments require re-verification and licensing procedures.
Within approved capacity, annual production scale will be set as a company’s yearly production-and-sales target. Scale adjustments will be reviewed “from strict to stricter,” with authorities emphasizing total-volume control.
For contract manufacturing, both principal and contractor must operate within verified limits. Companies with low utilization but continued outsourcing may face capacity reductions.
Consolidation and Regional Concentration
The directive allows consolidation through mergers among entities under the same controlling shareholder or through integration of production sites within a single enterprise. It encourages consolidated operations to be located in regions with stronger industrial foundations and higher enterprise concentration. Registered addresses and production sites should, in principle, coincide.
Compliance, Exit Mechanisms and Naming Restrictions
Firms failing to meet industrial policy, mandatory standards or requirements on quality, hygiene, safety, fire protection, environmental protection or energy consumption may see capacity eliminated or reduced.
Export diversion, false customs declarations and non-compliant products will face stricter enforcement.
On the domestic side, the directive reiterates bans on online sales through e-commerce, short-video, livestreaming and social platforms, and prohibits the use of dessert, candy or fruit flavor names for e-cigarette products.
Global Industry Implications: Alan Zhao’s View
1. Capacity Discipline and Accelerated Industry Concentration
Alan Zhao, co-founder and CEO of 2Firsts, said the directive marks the first time regulators have clearly signaled that total capacity across China’s e-cigarette industry should not increase, while simultaneously supporting consolidation through mergers and geographic clustering.
“This reflects a regulatory orientation toward higher industry concentration and greater operational efficiency,” Zhao said.
Under this policy direction, Zhao expects consolidation to accelerate, with weaker operators exiting the market more quickly. Only after such exits occur, he said, will stronger and better-managed enterprises be more likely to obtain room within the verified-capacity framework to expand their output quotas.
He added that intensified global competition has already led to debt pressures in parts of the upstream supply chain. In this environment, international brand owners selecting China-based manufacturing partners should place greater emphasis on evaluating long-term financial stability and operational sustainability, rather than focusing solely on short-term cost competitiveness.
2. Export Compliance Documentation: Avoiding an Implementation Shock
Zhao described the export-proof requirement as one of the most consequential clauses in the directive. The notice states that export products must submit supporting documents demonstrating compliance with destination-country laws and regulatory requirements, as part of strengthening full-chain export compliance.
“If this requirement is implemented in supervisory practice, it could significantly raise compliance standards across China’s export supply chain and help curb illicit trade,” Zhao said.
However, he stressed that the regulatory impact will depend on how authorities define the required “supporting documents.”
Taking the U.S. market as a primary example, Zhao noted that FDA PMTA disclosure remains limited and FDA has now authorized 39 e-cigarette products, while the vast majority of mainstream products consumed in the U.S. have not received such authorization.
He said grey-channel and third-country trade structures are already part of the current market landscape.
“If Marketing Granted Orders (MGO) were imposed as the sole export compliance proof, it would further exacerbate existing grey-channel and third-country trade patterns,” Zhao said. “Such an approach would not fundamentally resolve the underlying drivers of illicit trade in the U.S. market, and could instead complicate cross-border regulatory coordination and enforcement.”
Instead, Zhao believes a progressive “ladder” approach would be more workable. In the near term, using an FDA Acceptance Letter as proof would be more operationally feasible, as it demonstrates that a manufacturer has formally entered the regulatory review process.
As FDA review efficiency improves, documentation standards could be gradually elevated, eventually aligning export control with MGO-level authorization. “That sequencing would avoid an implementation shock while still moving toward higher compliance thresholds,” Zhao said.
3. Flavor Naming: Targeting the Real Youth-Attraction Risk
Zhao said the directive’s prohibition on dessert, candy and fruit flavor names for domestic products directly addresses what he views as the most sensitive risk factor in flavored e-cigarettes.
“Flavor diversity plays a positive role in harm reduction transitions for adult smokers,” Zhao said. “But youth attraction is often amplified through naming.”
In his view, naming poses a more significant risk than the formulation itself.
For export products, Zhao noted that destination-market regulators may define their own applicable product standards and share them with Chinese authorities. China’s underlying regulatory logic, he said, is differentiated: domestic products follow Chinese standards, while export products follow the regulatory standards of their destination markets.
Regulatory Tightening Since December 2025
The directive forms part of a broader sequence of regulatory actions since December 2025.
In early December, China’s State Council called for a full-chain crackdown on tobacco-related illegal activities. The General Office of the State Council subsequently instructed regulators to closely track emerging tobacco products and clarify their regulatory classification.
In late December, the STMA tightened controls on e-cigarette production capacity and investment and published regulatory status updates aimed at increasing transparency. On Jan. 5, 2026, draft rules proposing a credit-based regulatory system for e-cigarette enterprises were released, signaling a shift toward more institutionalized governance.
On Jan. 9, the regulator formally brought nicotine pouches and other oral nicotine products under the tobacco monopoly system, ending a legal grey zone and aligning product definition, regulatory classification and industrial policy.
The latest supply-demand directive extends this regulatory consolidation into the core of production structure and capacity management.
For the latest updates on China’s tobacco and nicotine market, continue to follow 2Firsts’ reporting.
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