How Hong Kong can profit from discouraging parallel trade
Regina Ip says promoting e-commerce with Guangdong would be a smarter move for Hong Kong than building parallel trade outlets near the border to appease angry protesters
The recent spate of "anti-parallel trade" protests in Sheung Shui, Sha Tin and Tuen Mun brought to the fore again the multi-faceted problems Hong Kong is facing in regional integration.
Concerns that the parallel trade might be "plundering" Hong Kong people of their resources ran so deep that Vincent Fang Kang, the legislator representing the retail sector, moved a debate in the Legislative Council on mainland tourism last Wednesday. Views were so divided that 11 amendments were moved.
Legislators put forward an array of prescriptions for the apparent social and economic dislocations caused by the influx of mainland visitors, especially the multiple-entry permit holders from Shenzhen. They included imposing a land passenger departure tax, mainland visitor arrival tax, limiting the number of visits of Shenzhen multiple-entry permit holders or abolishing the multiple-visit scheme altogether, and building new large-scale shopping outlets for parallel traders in Yuen Long.
None of the counter-measures stands up to scrutiny. Parallel trade is far from being unique to Hong Kong. It has sprung up in many border areas where there is a price differential in goods in demand. Even if restrictions are to be placed on the multiple-entry scheme for Shenzhen residents, so long as there is money to be made, locals will fill the gap.
An estimated 50 per cent of the parallel traders are locals, as Secretary for Security Lai Tung-kwok has pointed out. Before areas bordering Shenzhen were inundated with hungry shoppers and parallel traders from the mainland, unemployed or under-employed locals living in Sheung Shui or Sha Tau Kok had engaged in parallel trade.
Moreover, the multiple-entry scheme is no longer the sole channel for Shenzhen residents to make free and easy visits to Hong Kong. In recent years, the mainland authorities are issuing more and more "L" ( , i.e. tourism) permits to individual visitors. If the multiple-entry scheme is stopped, the number of visitors making use of such "L" permits would spike.
Considering the multifarious reasons Shenzhen residents have for visiting Hong Kong, including seeing their children born here, visiting doctors, accountants or business counterparts, taking SAT exams or watching banned movies, a wholesale ban would clearly be unacceptable to the Shenzhen authorities.
The possibility of imposing a land passenger departure tax was exhaustively explored more than a decade ago when Hong Kong was experiencing one of its sharpest economic downturns in the wake of the Asian financial crisis. The operational difficulty in collection, coupled with the fact that large numbers of locals, including children, crossed the land border for various purposes each day, caused the government to give up this idea.
As for imposing an arrival tax on mainland visitors, such an inhospitable measure is unprecedented in Hong Kong and runs counter to our well-established tourism policy of welcoming visitors. Moreover, an arrival tax targeting mainland visitors is downright discriminatory. If put to the Shenzhen authorities, it is entirely possible that Shenzhen would respond with a reciprocal measure.
The idea of building a large-scale, makeshift parallel goods outlet on the border sounds desirable as a stop-gap measure to channel mainland visitors to less crowded areas. But government support for such a facility raises important policy and operational questions. Question number one is, as a matter of economic or social policy, do we want to encourage parallel trade? Immigration and customs authorities on both sides of the border have been asked to clamp down on parallel trade. With such a new facility, would parallel trade not flourish even more?
Parallel trade is a low-value-added economic activity which should not be relied on as a long-term driver of growth. Parallel trade is, in the ultimate analysis, a manifestation of free market capitalism, and market forces would likely, over time, erode Hong Kong's competitive advantage in such business. It could vanish overnight, in fact, if the mainland authorities decide to reduce or remove their customs duties on the most popular goods, or when the perceived safety of products sold in the mainland improves.
Instead of building an interim parallel trade outlet along the border, Hong Kong's authorities would be responding in a much smarter and more innovative fashion by working with Guangdong authorities in building cross-border e-commerce. E-shopping has not flourished in Hong Kong because of the small size of our market, and Hong Kong consumers' preference to shop in stores. But the fiscal concessions the Guangdong authorities are introducing in some areas provide new opportunities for Hong Kong entrepreneurs to sell to the mainland. Such e-business would involve setting up new e-settlement, clearance and certification systems, as well as systems for quality assurance, and logistic and transport systems.
If Hong Kong business could sell successfully to Guangdong under such cross-border e-commerce arrangements, what is there to stop them from selling as far afield to, say, Ningxia in the northwest one day?
