HONG KONG - Golden Dragon Group (Holdings) Ltd., purveyors of the world's first "electronic cigarette", expects sales to double in 2007 as it expands overseas and some of China's legions of smokers try to kick the habit.

The firm hopes its Ruyan "e-cigarettes" -- battery-powered, cigarette-shaped devices that deliver nicotine when inhaled and otherwise hope to emulate the smoking experience -- can find a market as tobacco substitutes, for health or pleasure.

Local newspapers have questioned the product's safety, arguing that smokers inhale more nicotine on average than with a bona fide cigarette. Executives say those comparisons are misleading.

"We're a smoking replacement instead of just nicotine replacement," said Scott Fraser, Vice President of SBT (Holdings) Co. Ltd., the Beijing firm that first developed the e-smoking technology in 2003 and which is now controlled by Golden Dragon.

"The nicotine is delivered to the lungs within seven to 10 seconds. It feels like a cigarette, looks like a cigarette, it even emits vapour. In many ways, it is like an actual smoking experience, and that's what makes us different," Fraser told Reuters.

Ruyan -- roughly translated as "like smoking" -- products consist of a built-in microprocessor and atomiser that combine air intake with nicotine from a cartridge. When inhaled, it gives off a vapour that the company says is non-toxic.

Replacement nicotine cartridges -- good for on average 350 puffs, or around 30 cigarettes -- cost around 12 yuan ($1.56).

China -- home to 400 million smokers and a roughly US$160 billion tobacco industry -- accounts for 65 percent of Ruyan sales. The firm estimates around 10 percent of China's smokers are attempting to quit, and averaging a 2 percent success rate.

"The United States is our next target," said Miu Nam, executive director of SBT, adding that the United States accounts for the lion's share of the world's US$2 billion nicotine replacement market.

The nicotine replacement market includes the likes of Pfizer and Novartis AG, which sell more familiar products such as nicotine chewing gum, patches, and inhalers.

GLOBAL RUSH

Ruyan's e-smoking products are available in China, Israel, Turkey, Australia, and a number of European countries, but not yet the United States. Patents are completed or in progress for more than 40 countries including China, Austria, Australia, Israel, Denmark, the Netherlands, Switzerland, Slovenia, and Turkey.

Goldren Dragon's sales more than doubled to HK$286.1 million in 2006, after surging more than ten-fold to HK$135.6 million in 2005, a year after the technology was perfected.

The e-cigarettes sell for around 1,600 yuan (US$208) apiece.

The firm currently has distributors in 140 Chinese cities, but Miu declined to give the number of selling points worldwide.

Shares in Golden Dragon, which has a market cap of HK$981.12 million, have more than doubled in the past 12 months.

The company has three factories in China -- in Beijing, Tianjin, and Shenyang. It produces 300,000 smoking devices a year.

In 2006, e-smoking devices accounted for 80 percent of Golden Dragon's business, Miu said, with the rest going to ginseng and Chinese medical products produced by other companies that Golden Dragon controls.

Chinese media has called the technology unsafe, claiming one cartridge of Ruyan contains 18 mg of nicotine, compared to about 1.2 mg for a typical cigarette.

Golden Dragon dismissed the charges, arguing it would take much longer to go through one cartridge than a cigarette.

"Obviously we are facing challenges with the tobacco companies," Fraser said.

Shares in Golden Dragon closed up 0.72 percent at HK$1.40 on Wednesday, outperforming a 0.67 percent gain in the benchmark Hang Seng Index.

(US$1=HK$7.694)