By Kari Lindberg, Ka Ho Cheuk and Danny Lee
(Bloomberg) — Hong Kong has struggled to regain its appeal as a global retail haven since reopening this year, underscoring the damage that years of isolation have done to its $360 billion economy.
Tourists are not coming in the numbers they did before the 2019 protests, and in the years since, pandemic restrictions have made Hong Kong a no-go zone. June visitor numbers were 42% lower than the same month in 2018. The result is weak consumer spending. The value of retail sales in the month was the lowest for a June since 2011, excluding figures for 2019-2022.
The picture is markedly different from the last decade, when increasing numbers of mainland tourists crowded the city’s streets, demanding luxury goods. In 2018, a total of 65 million visitors came, up 11% from the previous year, making Hong Kong one of the most popular tourist destinations worldwide. That year, the city was also known for having the world’s most expensive shopping district, as international brands vied for a piece of that spending – a title it has since lost.
Hong Kong’s waning appeal as a shopping destination is one of numerous challenges facing the former British colony as it tries to revive its economy and global image. The historically thriving financial sector is shedding jobs due to a lack of deals, while office rents have plummeted after some companies relocated to Singapore. U.S. sanctions have barred President John Lee from traveling to many Western countries, limiting his ability to strengthen ties under the controversial national security law.
Even if mainland tourist numbers pick up again, Chinese tourists are unlikely to spend as much as they once did. Falling property prices and rising youth unemployment have dented consumer confidence, and the economic outlook is bleak.
The rapidly falling yuan is also making Hong Kong more expensive. The national currency, which is pegged to the greenback, is currently trading close to its highest level against the yuan since 2008.
According to Simon Wong, president of the Hong Kong Federation of Restaurants and Related Trades, many mainland tourists now prefer local cafes and restaurants rather than digging deep into their pockets and spending money on fine dining and luxury goods.
“Before Covid, they spent an average of about HK$500 (US$64) a day on food,” Wong said. “Now they spend a little more than half that amount.”
As an example of how Hong Kong’s situation has deteriorated, local media reported that a retail space in the tourist district of Tsim Sha Tsui was recently rented for 70 percent less than what Burberry Group Plc paid for it in 2014. The latest tenant is a Chinese jewelry brand.
“People are looking for experiences beyond just shopping, which is probably Hong Kong’s old model,” says Gary Ng, senior economist at Natixis.
Weak visitor spending is likely to weigh on the local economy, which is showing signs of weakness after recovering in the first quarter of the year. The government this month lowered the upper limit of its growth target for 2023 and said tourism and consumer spending will be the main drivers of expansion for the rest of the year.
“Unless tourist numbers return to pre-2019 levels, Hong Kong’s growth will slow in the second half of the year,” said Alicia Garcia-Herrero, senior research associate at Bruegel.
The government has launched a series of campaigns this year to attract visitors and boost the city’s image, including a tourism campaign called “Hello Hong Kong,” giving away airline tickets and inviting movie stars and influencers to Hong Kong. Finance Minister Paul Chan said in a recent blog post that the city needs to improve its competitiveness and ability to attract tourists. He added that the city will organize more events such as night bazaars and exhibitions.
Flight restrictions can also limit travel. Hong Kong’s airport, which used to be the world’s third-busiest in terms of international passenger traffic, is only operating at 60% capacity compared to pre-Covid levels, largely due to a shortage of workers. Hotels have also not yet returned to the service levels they enjoyed before the pandemic.
“Transportation and logistics capacity has a major impact on how many tourists can come to Hong Kong and stay overnight,” said Caspar Tsui, executive director of the Federation of Hong Kong Hotel Owners.
As tourist numbers remain low, Hong Kong residents are not joining in. Instead, they prefer to travel to the mainland, where goods and services are cheaper, helped by the falling yuan. In June, there were about 5 million trips by locals to mainland China, about 80 percent of the comparable period in 2018, according to data from the Census and Statistics Department.
“Shopping in Hong Kong is not worth it,” says Crystal Chan, a 22-year-old student who has visited neighboring Shenzhen five times in the past three months.
Even the city’s world-famous nightlife has been affected. According to Chin Chun-wing, chairman of the Hong Kong Bar and Club Association, bars in the city’s business districts are generating 70% of the monthly revenue they did before the pandemic.
Cliff Wong, an employee at a local university, said he used to go to bars with friends up to four times a week. With many of his friends leaving town due to pandemic measures and political tensions, Wong now meets up with his friends less than once a week on average.
— With support from Filipe Pacheco.
©2023 Bloomberg L.P.
