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Tom Holland

Many observers found it surprising that Hong Kong did not slide into recession in the third quarter of the year.
As Jake van der Kamp points out on the front page of today's Business Post, the good news clearly caught Donald Tsang off guard.
But he wasn't the only one. Plenty of professional forecasters who had been predicting a contraction were caught out as well.
Part of the reason they were so confident about forecasting a recession is because that is what Hong Kong's purchasing managers index, or PMI, was indicating.
In the past the PMI, based on a monthly survey of business sentiment, has proved a reliable leading indicator of economic conditions. It accurately predicted the recession that followed the 2000 dotcom bust, the 2003 Sars slump, and the downturn which followed the 2008 financial crisis.
But not this time. That is because Hong Kong's economy has changed shape recently. While much of the city's business activity is still powered by the international trade cycle, a growing portion is driven by free-spending visitors from the mainland. And those visitors appear remarkably untroubled by any deterioration in the global economic backdrop.
Last year some 22.7 million mainlanders visited Hong Kong, with nearly half staying for at least one night. And they spent with a will while they were here. The average overnight visitor from the mainland splashed out HK$7,453 during his or her stay, three quarters of it in the city's shops.
As the first chart shows, that places mainlanders at number one in the league table of big spenders visiting Hong Kong, above the open-handed Aussies and almost 50 per cent ahead of the tight-fisted Germans.
Mainland day-trippers shopped enthusiastically too, shelling out an average HK$2,356 each. As a result, mainland visitors to the city spent a total of HK$113 billion last year, equivalent to almost 35 per cent of Hong Kong's retail sales.
That number is only going to rise this year. Judging from the growth in visitor numbers over the first nine months of 2011, Hong Kong is likely to play host to some 28 million mainland visitors this year. That's 23 per cent more than in 2010.
On current trends, each of those 28 million is likely to spend about 10 per cent more in the city's shops and restaurants than last year's visitors.
As a result, total spending by mainland tourists is set to exceed HK$150 billion this year. Assuming that Hongkongers' own spending climbs by around 11 per cent in line with economic growth and inflation, that implies mainland spending will propel a handsome 20 per cent rise in overall retail sales this year, and that mainlanders will account for a hefty 39 per cent of Hong Kong's total receipts (see the second chart).
Even allowing for the fact that much of what they buy is imported, spending by mainland tourists will still account for a significant chunk of Hong Kong's gross domestic product this year.
More to the point, the growth in their spending will add somewhere between 0.5 and 1 percentage point to Hong Kong's overall economic growth rate, which is all the difference between an expanding economy and one that has tipped into recession.  Sadly, anyone who thinks that the latest move by the mainland authorities to promote electric car sales means good news for the environment is barking up the wrong tree.
Yesterday, shares in the electric car-maker BYD leapt 26 per cent after Beijing ordered 25 cities to waive licensing procedures for electric vehicles.
But if the new initiative does encourage greater use of electric cars, it will only increase the mainland's greenhouse gas emissions and exacerbate its pollution problems.
That is because petrol-engined cars are actually a fairly clean way of getting around compared to electric cars charged from a grid supplied by dirty coal-fired power stations.
According to a research report from the United Nations-backed Innovation Centre for Energy and Transportation in May, operating a Nissan Leaf electric car in Beijing would produce 44 per cent more carbon dioxide than running the equivalent Tiida petrol-driven model.
So if investors want to be green, they should steer well clear of electric cars.



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