Recovery in tourism seen as key to reviving flagging local economy
Visits by Chinese mainland residents to Hong Kong have taken a dive over the past year, following the local government's decision in April 2015 to restrict visits by Shenzhen residents. At the same time, Hong Kong's retail sales have also fallen. More recently, the city's retail sector has also suffered from another development, the rapid appreciation of the Japanese yen, which has eaten into the profits of Hong Kong retailers that sell Japanese products. Due to the sluggish retail sector, experts have predicted even slower growth for the Hong Kong economy in 2016. Because tourism remains a pillar of the local economy, experts have called for the city's government and people to adopt a more open attitude toward mainland visitors, which account for about 77 percent of Hong Kong's inbound tourists in 2015.
It has been one year since the Hong Kong government slapped restrictions on visits by residents of Shenzhen, South China's Guangdong Province. Since April 13, 2015, Shenzhen residents have only been allowed to visit adjacent Hong Kong once per week. Prior to that, they could visit as many times as they wanted.
The restrictions, which have taken a toll on Hong Kong's economy, were issued after several protests against mainland tourists broke out in Hong Kong, once considered a "shopping paradise" for Chinese mainland residents. The protesters claimed that the growing number of mainland tourists bought out daily necessities like baby formula in Hong Kong and contributed to rising retail rent costs.
Following the restrictions, mainland visits to Hong Kong fell. In 2015, the number of mainland visitors to Hong Kong dipped 3 percent from the previous year to 45.8 million, according to data from the Hong Kong Tourism Board. For the first two months of 2016, the number plunged 18 percent year-on-year to 7.4 million.
The restrictions alone could not cause such a large drop, said Liu Simin, vice president of the China Society for Futures Studies' tourism research institute, as even without the restrictions, most Shenzhen residents do not go to Hong Kong every week.
"It is the unfriendly message implied in the policy that has turned away many mainland visitors," Liu told the Global Times on Thursday.
He added that such policies, as well as occasional media reports about conflicts between Hong Kong residents and mainland visitors, have dampened mainland visitors' enthusiasm for traveling to Hong Kong.
The restrictions and reports about mainland tourists' unfriendly encounters with locals are not the only reasons for the drop in the number of mainland tourists, said Jiang Yiyi, a senior expert at the China Tourism Academy.
"The fact that most affluent Chinese have already been to Hong Kong, as well as the competition for mainland tourists from other destinations such as Japan and South Korea, have contributed to the decline," she said.
Regardless the reasons, analysts agreed that the trend won't change any time soon.
For Hong Kong, which relies heavily on tourism for growth, "it's definitely not good," Liu said.
Fewer tourists, fewer sales
The drop in tourism has gone hand in hand with declining retail sales. Retail sales in Hong Kong plunged 20.6 percent year-on-year to HK$37 billion ($4.77 billion) in February, according to data from the Hong Kong Census and Statistics Department. It was the worst monthly drop in 17 years.
Retail sales in Hong Kong had fallen by 6.6 percent year-on-year in January and 3.7 percent in 2015.
"The near-term outlook for retail sales will remain constrained by weak inbound tourism and uncertain economic prospects," the department said in a statement on March 31.
Mainland tourists, who tend to spend big on items like jewelry and cosmetics, have been a major contributor to Hong Kong's retail sales.
Major retailers have already felt the decline. Hong Kong-based Chow Tai Fook Jewellery Group reported its retail sales in Hong Kong and Macao dived 26 percent year-on-year in the first quarter of 2016, the company said in a filing with the Hong Kong Stock Exchange on Tuesday. Sales had "continued to be dragged by the declining visitation of mainland tourists," it said.
Hang Seng Bank predicted Hong Kong's GDP growth could dip to 1.8 percent in 2016, down from 2.4 percent in 2015, thanks largely to sluggish demand data, according to a report the bank sent to the Global Times on Thursday. Due to the slowing economy, Hong Kong residents have also grown more cautious about spending.
Stronger yen, higher costs
The appreciating Japanese yen has also made life difficult for Hong Kong retailers.
Many Hong Kong retailers sell Japanese products, so their costs rise when the yen increases in value, experts said.
The stock price of CEC International Holdings Ltd, which runs the 759 grocery store that sell many snacks and beverages from Japan, has tumbled around 31 percent on the Hong Kong bourse since the beginning of this year. The company plans to close 14 or 15 stores this year, the Hong Kong Economic Journal reported on Monday, citing Chairman Lam Wai-chun.
The Japanese yen has gained around 10 percent against the US dollar since the beginning of this year, after two years of deprecation. Because the Hong Kong dollar is pegged to the US dollar, the yen has also strengthened against it, cutting into retailers' profits.
Some experts have predicted that the yen might further strengthen against the greenback if the US Federal Reserve continues to postpone its plans to raise interest rates. But the good news for Hong Kong retailers is that any appreciation in the yen won't be drastic, said Liu Xuezhi, a senior analyst at Bank of Communications.
"Japan's monetary policy will remain accommodative given its weak economic recovery, ruling out the possibility of major appreciation in the yen going forward," Liu told the Global Times on Thursday.
An opportunity to seize
"I do hope that Hong Kong can adopt a more open attitude toward mainland tourists because their spending would instantly boost Hong Kong's economy," Jiang told the Global Times on Wednesday.
Otherwise, Hong Kong will squander an opportunity as mainland residents get more interested in traveling overseas.
Mainland visitors made 120 million trips overseas in 2015, up 12 percent from the previous year, the Ministry of Commerce said in February. While overseas, these visitors spent about 1.5 trillion yuan - about half of which was spent on shopping.
The Hong Kong government is also considering measures to avert an economic downturn.
The government has earmarked HK$240 million to rebuild the image of Hong Kong as a favorable tourist destination, Gregory So Kam-leung, secretary for Commerce and Economic Development of Hong Kong, said during a meeting on April 6.
