With a steep import tax on everything from electronic goods to apparel to milk powder in the mainland, Hong Kong has been the mainstay for retail tourism for Mainland China’s growing population of middle and upper class consumers. For nearly twenty years, Chinese shoppers have flocked to Hong Kong in pursuit of tax-free consumption.
Following the growing political tension in Hong Kong, the past year has seen tumultuous relations between Hong Kongers and Mainlanders. In short, anti-mainland sentiments in Hong Kong have driven away tourists. Some Hong Kong locals have even been directly protesting the large numbers of tourists coming from the mainland, crowding the city to maximum capacity during big holidays such as the lunar new year.
As a result of this animosity from local residents, this past year marks the first time in twenty years that Hong Kong’s retail sector has seen a drop in visitor spending. According to a report by Global Times, the value of total retail sales dropped 2.2 percent from April 2014 to April 2015. Spending by tourists since January this year alone has decreased by 2.3 percent. Inside the retail sector, jewelry and luxury goods have been hit the hardest by the slowdown.
This drop in sales is leaving Hong Kong retailers in a tight situation. Mainland shoppers make up the majority of retail sales in Hong Kong and are obviously the crucial player in Hong Kong’s retail industry. Due to the decrease in customers and rent prices that exceed that of New York’s Fifth Avenue, many big-name retailers in Hong Kong are freezing their expansion plans and even shutting down locations.
Despite this drop in retail sales, Hong Kong surprisingly did not experience a drop in the amount of Chinese tourists entering the special administrative region. They’re simply shopping less.
Or to rephrase, Chinese shoppers are choosing different destinations to go shopping. Retail numbers in Korea and Japan have both shown gains as Chinese travelers expand their horizons. The number of Chinese tourists to Japan during the lunar new year increased by 160 percent this year compared to 2014. Korea saw a similar 58 percent growth in lunar new year travelers this year.
China’s Asian neighbors aren’t the only ones who will benefit as more Chinese citizens get passports and become more adventurous in their travels. New York and Los Angeles are forecasted to become top destinations for China’s big spenders.
With other foreign destinations making efforts to market to Chinese travelers, it will be interesting to see which destinations are able to take advantage of this opportunity. Conversely, it’s still to be seen whether or not Hong Kong will take steps to mitigate the drop in mainland shoppers. Only time will tell.