All good things come to an end
Sometimes it is useful to be reminded that the good times do not always last forever. The central government's announcement that it plans to cut the import tax on luxury goods to as little as two per cent has caused unease among Hong Kong retailers and landlords, whose soaring incomes have been driven by mainlanders on spending sprees. When the new tariffs will be introduced and on what products has not yet been outlined, so for now it is a matter of guesswork as to the potential impact. Regardless of what it may be, though, the decision is a timely wake-up call that nothing should ever be taken for granted when it comes to our economy. China is the world's second biggest market for luxury goods and it is tipped to overtake Japan to gain the top position in three years. The Ministry of Finance has been the main hurdle to the dropping of the tax as it stands most to lose by having it lowered. But judging by foreign sales, the amount lost could easily be made up. Tourism bureau figures show that last year mainlanders who had holidays overseas spent 315 billion yuan (HK$379 billion), 11 times as much per person than domestic tourists. Beijing's move is long overdue. Authorities imposed the tax that can top 30 per cent in markedly different times and circumstances. With inflation running at an uncomfortable level, there is a need to drive domestic consumption. Encouraging spending at home is one way of attaining that goal.
Surveys show that more than 50 per cent of luxury purchases made last year were beyond the mainland's borders, mostly in Hong Kong, Macau, France and Italy. That affects retailers, foreign companies selling high-end products and firms trying to establish domestic luxury brands. But it is obviously good for Hong Kong's shops, which in districts like Causeway Bay and Tsim Sha Tsui are teeming with mainland visitors. High-end footwear and clothing sales were up 31 per cent last year, while those for jewellery rose 31 per cent.
The face of our city's shopping areas is being altered. Landlords are pushing up rents in the hope of attracting tenants eager for a piece of the action. Restaurants and shops that sell everyday items and necessities are being pushed out to make way for ones that sell name brands. Some traditional businesses are closing for good.
What happens when the import tariffs are lowered is unclear. Some sales will certainly fall, but not all tourists come here purely to shop. Most visit for sightseeing, to experience the culture and food and go to attractions. While they are in Hong Kong, they will continue to buy.
Nonetheless, the uncertainty is cause for thought. Our economy should be prepared for every eventuality and not be overly dependent on a single income stream. Putting too many eggs in one basket is never a good idea. For our own financial good, we must be prepared to adapt.