The sharp decline in the yuan and volatile stock markets have exacerbated retail and tourism woes in Hong Kong as a weak currency means it is no longer attractive for mainland visitors to shop and dine in the city.
Experts fear the falling yuan will further discourage mainland tourists. A total of 38.6 million visited the city in the first 11 months of 2015, accounting for about 77 per cent of all arrivals to Hong Kong.
“Mainland tourists will turn to places with weaker local currencies,” says Charlie Chen, head of Asian consumer research at French bank and financial services company BNP Paribas.
Although the yuan is falling against the US dollar, Chen says it is not necessarily depreciated when converted to other major currencies, like the South Korean won and Japanese yen. But the Hong Kong dollar is pegged to the US dollar, which means higher prices when converted to yuan.
“The luxury sectors will be hit the most if the yuan continues to depreciate,” Chen notes. He says people tend to buy expensive goods in places with weaker currencies than their own, as they can save more money in absolute terms.
Jewellery, watches, clocks and valuable gifts are already ranked the worst performer among all retail outlets in Hong Kong, with sales down 20.6 per cent in November on a yearly basis.