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Hong Kong economy

Hong Kong’s retail recovery at threat as mainland Chinese currency weakens amid US trade war

Yuan forecast to remain low at least until the end of next year, which will continue to make Hong Kong less attractive for mainland shoppers

PUBLISHED : Sunday, 29 July, 2018, 12:01pm
UPDATED : Sunday, 29 July, 2018, 12:01pm

The nascent recovery in Hong Kong’s retail sector is coming under pressure from a depreciating mainland Chinese currency, with shoppers from across the border expressing more caution about spending in the city as they get less bang for their buck.

Visiting shoppers the Post spoke to said the recent weakness in the yuan amid China’s escalating trade war with America had eroded their buying power in the tax-free city.

The Hong Kong dollar is pegged to the greenback.

Analysts warned that the yuan, which has depreciated 6.6 per cent against the Hong Kong dollar since the beginning of April, would remain weak and continue to put pressure on retailers in the city.

Mainland shoppers meanwhile should brace for more price rises as the trade spat rolled on, economists said.

“Renminbi depreciation will be a key factor in Hong Kong’s retail recovery – whether Chinese tourists will travel and where they will travel,” said Mariana Kou, head of China education and Hong Kong consumer research at brokerage CLSA.

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The company forecast the yuan to remain weak throughout this and next year, depending on the macro economic environment.

“We are likely to see a weak yuan stay,” she said.

Hong Kong’s retail sector finally began rebounding last year after two years of decline. It has grown by double digits since February, clocking up 12.9 per cent in May.

Its fortunes are closely tied with mainland visitors, who account for three in every four tourists in Hong Kong.

According to the China Foreign Exchange Trade System, US$1 was equivalent to 6.79 yuan on Friday. The greenback has gained 8.2 per cent against the Chinese currency since April 2, and 6.6 per cent against the Hong Kong dollar. CLSA expected the yuan to further depreciate to 7 yuan per US dollar by the end of the year.

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Li Yibei, a 34-year-old mother from Guangzhou who visits Hong Kong every couple of months, said she would think twice before buying things in future.

“For sure, it is more expensive to shop here now, but I will definitely buy things if they are necessities,” she said.

Cai Meirong, a 31-year-old Shandong-based agent helping clients on the mainland buy consumer goods in Hong Kong, said she faced a less profitable business.

She would not be able to pass the exchange rate rises onto her customers in the form of higher prices, she said.

“Compared with shopping services in Japan and South Korea, products in Hong Kong are not cheap,” she explained. “If I raise the price too much, people will not buy goods through me.”

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However, Standard Chartered Bank Greater China senior economist Kelvin Lau Kin-heng was confident about the retail sales outlook, citing resilient demand.

“The yuan will probably stay weak in the coming months, but will not be significantly weaker than where things are now,” he said.

Beijing was unlikely to allow the currency to depreciate “too fast in too short a time”, to avoid risking capital outflow from China.

And there were still plenty of diehard shoppers undeterred by the volatile currency.

Ruan Yan, 33, from Guangzhou, who regularly visits Hong Kong to shop, said she made the journey because products in Hong Kong were authentic.

“The cosmetics I get here are still cheaper than those on the mainland,” she said.

“At least I won’t get counterfeit goods here, and the products are more reliable.”

She spent about HK$3,000 per visit, she added.

Hong Kong money exchange manager Tse Wing-leung, from Tsuen Wan, said there had been 20 per cent more people buying yuan in the past month, betting on the currency rising again.

Another in Causeway Bay also said the number had jumped 20 per cent this month, with 70 per cent of the buyers being Hongkongers.