Declining HK retail may be a boon to small businesses

By Hilton Yip Source:Global Times Published: 2015-4-23 17:13:01

Travel restrictions might be blessing in disguise

Illustration: Chen Xia/GT

Over the last few months, Hong Kong has experienced protests against visitors from the Chinese mainland. As a result, Hong Kong suffered drops in both mainland visitors and retail sales in the first quarter of this year, leading to worries about the economy. While things may be unpleasant in the short term, the situation actually presents an opportunity for Hong Kong to make some necessary changes.

In January, retail sales fell 14.5 percent - the biggest drop since 2003, when Hong Kong suffered a SARS outbreak. Meanwhile, mainland tour groups fell 80 percent in March. For January and February, retail sales fell by 2 percent in terms of value.

The turmoil last year with the Umbrella Movement and ongoing anti-mainlander sentiment among some Hong Kongers were seen as the main reasons for the fall in mainland visitors, who make up the vast majority of the city's tourists.

More than 47 million mainlanders visited Hong Kong in 2014. Many were parallel traders, who make regular trips to Hong Kong to buy things like powdered milk, pharmaceuticals and cosmetics, which they then take back to the mainland to sell. A few small but rowdy protests broke out in February and March against mainland parallel traders, which brought the issue to a fore.

The mainland implemented a policy last week to restrict mainland multiple-entry permit holders, who are Shenzhen residents, from coming to Hong Kong more than once a week. The decision only applies to new permits and does not affect current permits, the holders of which can continue to visit Hong Kong without restriction, at least until the permit expires.

While the restriction pleases some Hong Kongers, others are worried that fewer mainland visitors will cause a decline in retail sales and hurt businesses such as luxury brand stores, pharmacies, cosmetics stores and grocery stores that cater to mainland parallel traders.

However, the actual impact won't be as bad as the critics say, for several reasons.

First, economists predict that the restriction on multiple-entry permit holders from the mainland will cause retail sales to decline only 2-3 percent, according to media reports. This hardly represents a big blow to the retail industry and a reduction in stores selling things for mainland parallel traders opens up room for other kinds of businesses that cater to locals.

Second, while mainland parallel traders may be limited in their visits to Hong Kong, the demand for affordable and safe goods like powdered milk and vitamins remains significant in the mainland. Parallel traders might end up spending more. Or perhaps more Shenzhen residents might take the opportunity to get involved. In addition, while mainlanders are often blamed for parallel trading, in reality, some of the people indulging in this trade are from Hong Kong. Not only can these local parallel traders continue, but there is now more demand, which has led to online ads for Hong Kongers to engage in the practice.

Third, the fall in retail revenue has resulted in drops in commercial rents, which are considered very high and have caused small businesses to close down at the expense of stores catering to wealthy mainland consumers or parallel traders.

Prime street shop rents already fell 8.5 percent year-on-year in 2014, according to property consultancy Savills, with decreasing numbers of Chinese visitors a factor. The ongoing retail slowdown has led many business owners to try to negotiate lower rents from their landlords. Otherwise, they move out.

This effect will help and entrepreneurs start up businesses and small businesses afford to pay the rent. In turn, this will lead to a more diverse and vibrant small business sector. Constantly rising rents have often been cited as the reason why Hong Kong is full of jewelry and luxury brand stores, while family-run restaurants and stores are often forced to close down, some after many years in business.

A slight reduction in visitors and retail shopping may be a small sacrifice if it means Hong Kong can grasp the opportunity to diversify its industries, especially tourism, and also improve the livelihood of local residents. Hong Kong can reduce its dependence on mainland visitors and parallel traders, especially as more mainland tourists are traveling to other countries like Japan, Thailand and Europe to do shopping. The reduction in visits by mainland parallel traders can be somewhat offset by attracting more mainland tourists such as by an expansion of the scope of the individual Hong Kong travel permit program for mainlanders. 

While there may be further decreases in retail sales and visitors, Hong Kong can weather the storm and take advantage of what may become its "new normal."

The author is a copy editor with the Global Times.


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