For Hong Kong, it’s been one thing after another.
A series of anti-China and pro-democracy protests last year prompted stores to close and mainland tour groups to cancel bookings. Meanwhile, a slowing Chinese economy and President Xi Jinping’s anti-corruption and austerity campaigns have also made the Chinese more wary of buying pricey cognac and Gucci bags in the city.
While still the biggest outbound destination for Chinese tour groups, Hong Kong is in danger of losing its lead. Mainland Chinese travellers to Hong Kong last year grew by the slowest pace since 2009, Bloomberg Intelligence data show.
Suncorp notes that the declining AUD has brought in more short term arrivals to Australia, and Australian Bureau of Statistics data shows that it is the Chinese who are coming in increasing numbers with more than 1 million arriving in the 12 months through May, a 17 per cent increase year on year.
The Aussie has declined almost 35 per cent against the US dollar in the past four years, increasing the purchasing power of tourists and encouraging Australians to holiday at home.
“According to Tourism Australia, they spent $5.7 billion in 2014, and this is forecast to more than double to $13 billion,” says Suncorp. “China has now surpassed the US as the biggest spender on tourism last year. But Tourism Australia considers we need to do more to take advantage of this boom in tourism and that our attractions are outdated. While we had a massive investment in mining, there was an underinvestment in the not so appealing tourism industry. It is likely that further investment and polishing up our industry will take time, but it is an important step to achieving economic growth in the long-term for Australia, as key commodity prices unwind.”
Back in Hong Kong, with fewer mainland Chinese staying overnight, average daily rates at Hong Kong’s hotels fell for a ninth straight month through June. The Pearl of the Orient also faces rising competition from regional rivals such as Thailand and South Korea, and mainland alternatives including Shenzhen and Shanghai.
In addition, China slashed tariffs on products such as face creams and imported sneakers from June 1, reducing Hong Kong’s draw as a cheaper shopping destination.
The effect on Hong Kong’s retailers has been immediate and painful. Retail sales fell in four of the five months through May, with jewellery, watches and other high-end gifts the worst hit.
Burberry Group, whose stores in Hong Kong’s Causeway Bay and Tsim Sha Tsui shopping districts sell $HK18,500 ($US2400) handbags and $HK24,000 dresses, has said it may try and lower its rent bill to offset a worsening slump in Hong Kong, while Emperor Watch & Jewellery, which sells Cartier and Montblanc watches, said it may shut one or two of its Hong Kong stores when their leases end this year.
And the news out of China doesn’t inspire much confidence. French distiller Remy Cointreau reported first-quarter sales that missed analyst estimates as Chinese wholesalers continued to hold back on cognac orders. Prada also reported first-quarter profit that trailed analyst estimates on slumping sales in China, while foreign carmakers including Audi have stepped up discounts to woo buyers.
So there’s no relief in sight for Hong Kong. The tourism board forecasts overall visitor arrival growth to slow to 6.4 per cent in 2015 from 12 per cent last year, with mainland Chinese tourist arrivals expected to drop by half to 8 per cent. Hong Kong’s economy expanded 2.1 per cent in the first quarter from a year earlier, weaker than a revised 2.4 per cent expansion in October through December.
“We’re just too exposed to China,” said Silvia Liu, a Hong-Kong based economist at UBS. “Structurally, until the tourism sector consolidates and Hong Kong finds new growth engines, I don’t see the way out yet.”
