Worrying times for Hong Kong's retail trade as mainland visitors' spending falls
It is to be expected that the loudest complaints about a fall in retail sales would come from shopkeepers paying sky-high rents in tourist shopping areas. They bet big on a rising tide of cashed-up mainland customers with insatiable appetites for luxury purchases. Now many are feeling the pain of falling sales and less conspicuous consumption. They are one group who would be alarmed by suggestions that Hong Kong regulate the flow of tourists to reduce ill-feeling among some residents towards mainland visitors and shoppers.
The combination of rapid mainland economic growth, extravagant consumption and robust growth in visitor numbers could not be sustained forever. April saw the sharpest year-on-year fall in Hong Kong's retail sales in five years, as the rate of growth in the number of visitors slowed from 26.7 per cent in March to 14.7 per cent. Sales fell in March too.
The two straight months of falling retail sales attributed to mainland tourist spending come on top of first-quarter gross domestic product data showing a sharp fall in the contribution of exports to growth, primarily due to the downturn on the mainland. However, the April retail data shows that the fall in consumption value of 9.8 per cent, to HK$38.8 billion, was only marginally greater than the fall in sales volume of 9.5 per cent. That is to say, retailers have not been panicked into steep discounting. This could mean they believe the slowdown is temporary and will be reversed by measures taken by mainland policymakers to underpin economic growth which are already having a positive impact.
That said, the spurt in retail sales growth that ran until last year was always going to undergo a correction, with growth rates returning to more normal patterns.
Retailers would find it harder to adjust to a cap on tourist arrivals, because visitors are a major source of underlying demand and sales. In that respect it is good that Chief Executive Leung Chun-ying has played down suggestions that a 20 per cent cut in mainland visitor arrivals is on the cards, while acknowledging that the authorities are looking into the need for a strategy for handling the tourist influx.
Net retail sales are still going to rise overall this year in Hong Kong, but at about half the pace of 2013 - an exceptionally good year due to factors such as falling gold prices and the rising yuan. If weakening sales lead to a fall in rents in popular shopping districts, that would be positive for sustainable growth in the longer term.