The city's retail scene stood to win or lose from policies that impact on mainlanders who throng our shopping malls. On one hand, President Xi Jinping has led a crackdown on corruption that targets extravagance and conspicuous consumption. On the other, the central government has introduced selective measures to stimulate investment and spending to keep the economy on track to achieve growth goals.
If Hong Kong's latest retail sales figures are anything to go by, Xi's anti-graft campaign is having a bigger impact here so far. Government statistics show that sales revenue declined in June for the fifth consecutive month, down 6.9 per cent compared with June last year by a sustained plunge in demand for luxury goods.
Sales of high-end jewellery, watches and valuable gifts fell more than 28 per cent year on year, following a 40 per cent plunge in April. In the first six months retail sales fell 1.3 per cent, the worst first-half performance since during the global financial crisis in 2009.
Many retailers affected by the slowdown put their faith in the theory that it is temporary and will be reversed by the measures to underpin economic growth. These may already be having a positive impact on the mainland, but not in Hong Kong yet, going by anecdotal evidence like shuttered shops in expensive shopping areas such as Causeway Bay.
That said, it is a question of which factor drove retail operators out first - high rents or falling sales revenue that ultimately made them unaffordable. In many cases it would surely have been both.
However, the spurt in retail sales growth by double-digit margins that ran until last year was exceptional. It could never be sustained. Growth rates were bound to return to more normal patterns. There is an upside. Cooling sales should help rein in rents for retail premises, blamed for driving out traditional local businesses and a factor in high prices.
Counter intuitively, local diners rescued the restaurant trade from the downturn by increasing their spending on meals by 3.6 per cent in the first half, compensating for curbs by Xi that discouraged mainland companies from hosting expensive entertainment. It now remains to be seen if restaurants driven to upper floors by soaring retail rents will be able to return to better street-level positions.