Millions living near border now buy their groceries in Hong Kong

Millions of Guangdong residents routinely shop for necessities as well as luxuries in the city

PUBLISHED : Friday, 08 February, 2013, 12:00am
UPDATED : Friday, 08 February, 2013, 8:57am

Every Saturday, Angela Zhang leaves her home in Shenzhen with a large, empty suitcase. When she returns from Hong Kong in the afternoon, it is bulging with cosmetics products, bottles of wine, cooking oil and sometimes even rolls of tissue paper.

This has been a routine for the 35-year-old for more than five years. "Almost all the daily necessities we use at home are from Hong Kong."

Zhang is far from the only person doing this.

While much attention and anger has been focused on parallel traders who stock up on products like baby milk formula for resale across the border, shopping in Hong Kong has become a monthly, or even weekly, affair for many middle-class households in Shenzhen and the Pearl River Delta. Their shopping list is no longer limited to luxury goods or big-ticket items, but almost every daily necessity one can imagine.

In practice, this adds several millions regular customers to Hong Kong's retail market. While it may be good news for shop owners and landlords, the huge influx has created a shortage for Hongkongers, who find they have to compete with mainland shoppers for infant formula and many other products.

For most shoppers from Shenzhen, the city is simply a place to regularly stock up on bargains.

"I go to Hong Kong twice a month. All the things that I use in the kitchen and the bathroom are from Hong Kong: shampoo, toothpaste, seasonings and soap," said Tang Ying, an administration manager in Shenzhen.

Like many shoppers, Tang says the price difference is a big incentive - with savings more then cancelling out the cost of the trip. On average products sold in Hong Kong are 20 per cent cheaper than they would be in Shenzhen, Tang says.

"I even buy all the fruit, frozen seafood and meat in Hong Kong," she said. "They are simply cheaper and better." Kiwi fruit, for instance, sell for about 3.80 yuan (HK$4.67) each in a Shenzhen supermarket but only cost HK$2.30 in Hong Kong. A frozen chicken costs the equivalent of about 70 yuan in Hong Kong but more than 90 yuan in Shenzhen's Jasco supermarket.

And it is not just food; almost all products, from iPhones to T-shirts, are cheaper in Hong Kong even though they are all made on the mainland.

Lu Ting, China economist at Bank of America Merrill Lynch, says there are several reasons for the price gap.

"First of all, China's tax rates on imported products are high. There are import and consumption taxes on luxury goods [at rates between three and 30 per cent]. So for imports in China, they are usually much more expensive [than in Hong Kong]," Lu said.

"For goods that are made in China, the retail prices have to include 17 per cent VAT tax and urban maintenance and construction tax. But if these goods are sold outside the mainland, the 17 per cent tax is returned, making them cheaper when sold in countries with low imports tax and low consumption tax," he said. Hong Kong has no consumption tax.

Lu said another big factor pushing up the prices was higher logistic costs. "The manufacturer needs to pay several layers of agents, rental and other fees to get its products on shelf. In the US, these costs are much lower thanks to its very well developed retail networks."

He said some foreign brands make it part of their marketing strategy to deliberately mark up their retail prices on the mainland so their products would be considered luxury goods.

Zhao Ping, a senior researcher on consumer economics at the Chinese Academy of International Trade and Economic Co-operation, said excessive money supply was also to blame. At the same time, the labour, land and rental costs in the mainland have been rising faster than those in developed nations," she said.

Zhao, like Lu, believes lowering taxes is key to levelling the prices. "It's very necessary to lower import tariffs in the face of the global economic integration," Zhao said.

However, she said the government shouldn't directly cut the duties, as that might just benefit importers instead of end-users. She said the government could consider giving tax rebates directly to consumers.

This year, Beijing has lowered import tariffs covering more than 780 categories of goods. For infant formula, the duty has been halved to 5 per cent. However, local media have reported that retail prices for imported milk powder have actually risen thanks to robust domestic demand.

Price is not the only reason Shenzhen consumers are driven to Hong Kong. The prevalence of fake products and food safety concerns are also an incentive. "I don't have to worry about food safety problems when I'm shopping in Hong Kong," Tang said.

And for many middle-class people in Shenzhen, shopping in Hong Kong is also a symbol of social status and living style.

"A wonderful weekend for me and my girlfriend is to go shopping in Sha Tin or Sheung Shui after doing yoga in downtown Futian district in Shenzhen," Tang said.

As a result, hundreds of thousands of Shenzhen residents now come to Hong Kong regularly for casual shopping. While there are no official figures, evidence gleaned from other statistics is quite telling. In 2011, nearly 20 million mainland tourists visited Hong Kong and about 80 per cent of them were from Guangdong.

A lot of them come not for the Disneyland theme park on Lantau or the view from The Peak. They come to Hong Kong to do their routine shopping. For people living in Shenzhen, travelling to Hong Kong can be more convenient and cheaper than going to Guangzhou.

"It takes me a 45-minute bus ride and HK$30 to go from my home to Mong Kok," said Zhang, who lives in the Futian district of Shenzhen.

"I can save several hundred [dollars] from my shopping each time. It's a no-brainer."

While Shenzhen boasts the highest per capita disposable income on the mainland - 36,505 yuan per year in 2011 - the amount of money its residents spend in local shopping malls is way below the national average.

When it comes to shopping, its residents prefer to spend their fortunes across the border: domestic consumption accounted for less than 27 per cent of the Shenzhen economy - below the national average of 36.75 per cent.

Many Shenzhen retailers blame the proximity of Hong Kong for the problem.

And with travel across the delta becoming cheaper and more convenient, the trend is likely to continue, with people from more mainland cities making shopping trips. It now costs Guangzhou residents less than HK$100 for a return trip to Causeway Bay.

"You can get a comfortable round-trip bus from Guangzhou to [the] Lo Wu [border checkpoint] and back for only 49 yuan," said He Huiying, a Guangzhou-based college student. He saved more than 200 yuan when she bought sports shoes in Hong Kong last week, instead of outlets of Guangzhou.

"The pink skinny-print Nike shoes that I wanted to buy cost 769 yuan in the Nike shop in Guangzhou. It is too expensive for a college student like me. But I can get them for 550 yuan in Hong Kong. Now if I want to go to Hong Kong, I just need to make a call and pay 20 yuan to get my visa renewed. I can go there every week."