China’s Hong Kong Special Administrative Region may lift its ban on re-exports of e-cigarettes and other heated tobacco products by land and sea by the end of 2022 to boost growth. But an economist warned on Monday that if Hong Kong backs down on its commitment to curb tobacco use and weakens its promotion of public health, the move will damage the sector’s credibility.
A government insider said: “Given the enormous value of re-exports, senior officials are considering easing the transshipment ban on re-exports of alternative smoking products from Hong Kong. The original intention of the revision is to prevent re-exports from returning to Hong Kong by other means. The new move will overturn the tobacco control regime. Under the city’s current law, which was revised last year and went into effect at the end of April, no one can import, sell or manufacture alternative smoking products such as e-cigarettes, heated tobacco products and herbal cigarettes. Violators face fines of up to HK$50,000 (US$6,370) and up to six months in prison, but consumers are still allowed to use vaping products.
The legislation also prohibits the transshipment of smoking products by truck or ship to overseas via Hong Kong, except for air transshipment cargo and transit cargo left on aircraft or ships. Before the ban, Hong Kong was a major transshipment point for domestic vaping products. A December report by the China Electronic Chamber of Commerce found that 95 percent of the world’s e-cigarette products are produced in the mainland, and more than 90 percent of exports are worth about 138.3 billion yuan ($19.23 billion).
Government agencies are understood to be considering changes to the rules by the end of the year, which are expected to bring billions of dollars into government coffers each year. The Hong Kong Freight Forwarders and Logistics Association said in September that restrictions on the transshipment of e-cigarettes in Hong Kong have also resulted in a reduction in outbound air cargo. Affected shipments of e-cigarettes are estimated at 330,000 tons per year, costing about 10% of Hong Kong’s annual air exports, according to a survey of the association’s members.
The association said the value of re-exports affected by the ban was estimated at more than 120 billion yuan. The group’s chairman, Lau Ho-hsien, also warned that the ban has shaken Hong Kong’s status as a regional transshipment hub and dealt a huge blow to people’s livelihood.
Yi Zhiming, a legislator who represented the city’s transportation department and lobbied to ease the ban, said amendments to the law could include allowing re-export of vaping products by sea and air, as there are now logistics systems in place to prevent products from slipping into the city. The Airport Authority operates a logistics park in Dongguan that acts as a joint checkpoint for the movement of goods. It will cast a huge safety net to block. “He says. “When the cargo arrives at the Hong Kong airport, the transit cargo will be loaded onto the aircraft for re-export.
The government is concerned about the risk of vaping products entering the community. Now, this new security system closes the loopholes in product transshipment, so it’s safe to change the law. But Li Xiaobao, an economist and honorary researcher at the China Asia-Pacific Business School, said the SAR government could make a U-turn over the re-export ban on overland vaping products, thereby damaging its credibility. The SAR government is facing increasing financial pressure, with poor revenue from stamp duty and land sales. It needs to generate some revenue in various ways, which is understandable. He says. But a U-turn could undermine the government’s purpose of safeguarding public health, and the public could see the government as failing to deliver on its promise to crack down on tobacco products.
Financial Secretary Paul Chan expects the budget deficit to exceed HK$100 billion (US$12.7 billion) this year, almost double the forecast, as stamp duty and land sales revenue is expected to be much lower than expected due to the Covid-19 pandemic and a weak external economic environment. But Lee said the government should look for long-term solutions to generate revenue, such as diversifying revenue streams, rather than relying on the proceeds from land sales. He added that lifting the ban on re-exports of e-cigarettes would only provide some short-term financial relief for the authorities.
The core problem is the city’s narrow tax base. The government must find some long-term solutions to expand revenue streams, or it may need to make U-turns on many policies. He says. China’s Hong Kong Special Administrative Region first proposed a blanket ban on e-cigarettes in 2015, but the proposal was watered down in 2018 when it decided to regulate the industry in the same way as traditional tobacco products. However, after heavy criticism from Hong Kong’s medical and education departments, then-chief executive Carrie Lam proposed a complete ban on e-cigarettes, heated tobacco products and herbal cigarettes in her 2018 policy address.