It’s Chinese New Year in Hong Kong, and the shops along Nathan Road’s Golden Mile are packed. From cosmetics emporium Sasa’s to gold barons Chow Tai Fook, the counters are thronged with visitors from mainland China and virtually the only language spoken is putonghua.
Around the corner, at the behemoth shopping center Harbour City, mainlanders queue outside of Louis Vuitton and Fendi, while inside, salespeople scramble to restock the shelves.
Times are changing fast. Only a few years ago, Hong Kong’s salespeople spoke halting Mandarin while looking down their noses, but these days, they’re fluent, cordial and full of encouragement to buy. Mainland customers, eager for the latest styles, guaranteed quality, wide selections and low prices aren’t missing a beat.
Buoyed by an unprecedented economic boom, loosened travel restrictions and the slow but steady appreciation of the renminbi, the volume of mainland visitors to Hong Kong – and their spending power – is on the march. The latest figures released by the National Development and Reform Commission reveal that for the first eleven months of 2007, 7.5 million mainlanders visited the SAR, up 30% year-on-year and beating out visits to Macau by a cool million.
“Hong Kong is a shopping paradise,” said 31 year-old Shenzhen resident He Yinjie. “I usually go to buy famous label clothes and cosmetics. When family members get married, I buy diamonds and gold there too. It’s much cheaper than in Shenzhen, there’s more to choose from and the quality is good. It’s the same with all my friends.”
Long a shopping haven for the rest of the world, Hong Kong is increasingly alluring for mainland Chinese. While duties and luxury taxes in the mainland can significantly increase the prices of anything from Swiss watches to German automobiles, Hong Kong’s lower prices and “get what you pay for” reputation make it the top choice for shopping trips.
Bang for your buck
In the wake of the global financial downturn, which China’s non-floating currency has been largely sheltered from, mainland shoppers are finding that their yuan goes further than ever before.
What’s more, they’re not only coming for luxury goods.
“Lots of middle- and upper-class women from Guangdong province come to Hong Kong for the day, or overnight, just to buy daily necessities,” said a Tsim Sha Tsui guesthouse owner surnamed Xu. “They buy shampoo, moisturizer, milk powder, just about anything.”
Mainland and Hong Kong residents both cite a lack of consumer confidence in mainland-purchased goods as a factor driving increased spending in the SAR.
In the wake of 2004’s fake milk powder scandal in Anhui Province, in which dozens of babies died, and subsequent high-profile cases involving substandard facial and body products, many mainland buyers place more faith in products sold in Hong Kong. With last year’s opening of two new border crossings between Shenzhen and Hong Kong, it’s easier than ever for nearby mainland residents to shop in the SAR every week.
Students are also making the cross-border commute. Last year, a Shenzhen government study revealed that some 3,000 children of Hong Kong residents living in Shenzhen cross the border every day to study in the SAR’s under-enrolled kindergartens and primary schools.
More than 10 years after the handover, increased cross-border marriages and lifestyles may be gradually blurring the distinction between the Hong Kong SAR and the Shenzhen SEZ. It’s estimated that since 1997, over 500,000 mainland Chinese have moved to Hong Kong.
Mainland capital inflow to Hong Kong is not only affecting retail sales.
As Shenzhen’s real estate market has cooled in the face of stricter government policies, investors are looking to diversify their portfolios through the acquisition of Hong Kong property holdings. Though lower annual yields pale in comparison to the returns from previously bullish Shanghai, Beijing and Shenzhen, Hong Kong properties offer stability.
SAR authorities also recently removed the rent increase cap, creating increasingly profitable rental opportunities.
With property prices nearly the same as in Shenzhen, savvy investors are buying high-quality second and third flats in the northwest New Territories area of Tin Shui Wai. Frequent business visitors to Hong Kong prefer to buy than spend thousands each month on hotels. And while the bulk of mainland property purchases tend to be low end, many luxury flats in West Kowloon and Central are also being snapped up by well-to-do buyers from north of the border.
An eye for equities
By far, one of the most enticing, but still-contentious, outbound investment opportunities for mainlanders revolves around the Hong Kong Stock Exchange, both for purchase of local stocks and mainland-registered H-shares. As of July 2007, the Qualified Domestic Institutional Investors (QDII) initiative, which enables mainland banks, brokerages, funds and insurers to buy equities in Hong Kong, had been approved for investment of US$18.9 billion.
However, the much-touted “through-train” scheme, which would give individual mainland investors direct, legal access to Hong Kong markets, is still tied up. Nevertheless, the desire to diversify, amidst concerns over fluctuations in the mainland markets, is strong enough that many mainlanders still find ways to invest in Hong Kong markets, through local bank accounts and friends.
While some criticize the Chinese government’s lack of capital investment in Hong Kong, many local residents feel that increasingly close ties with the fast-growing mainland have been a great boon for their economy. It was mainland investment that kept Hong Kong’s economy robust through the Asian Financial Crisis, recession and SARS.
Just five years back, many Hong Kong people still looked at the mainland with quiet disdain, but subsequent years have proven just how interconnected the two economies are, driving more and more Hong Kong residents to learn Mandarin and to forge new business ties with mainland partners.
It’s possible that in years to come, Hong Kong may see many of its well-to-do residents, who fled pre-1997, returning home with money to spend.