Parallel traders from the mainland[1] are often blamed for overcrowding in local Hong Kong stores and rising prices in districts near the border such as Yuen Long, Sheung Shui and Fanling. In recent years, we’ve seen an increase in the number of small shops opening to cater for parallel traders. What’s more, the demand for these shops has seen retail property rents rise significantly, which has not only pushed out local businesses but also left large areas in these districts with small shops that sell homogenous goods and provide little appeal to local shoppers.

After months of angry protests from local residents, the government finally vowed to public pressure and put its foot down on parallel traders. From April 13, all multi-entry visas granted to Shenzhen residents will limit the number of visits to Hong Kong to once per week.

As a result of the new measure, the government expects visitor arrivals to drop by about 4.6 million visitors—equivalent to about 7% of 60.8 million visitors to Hong Kong last year. Based on per capita spending of about HKD 2,000 per visit, the potential loss in retail sales could amount to HKD 9 billion, which is equivalent to taking 2 percentage points off headline retail sales growth in 2014. In a market where retail sales were already down by 0.2% in 2014, a deeper contraction would ultimately affect retailer sentiment in the market and impinge on demand growth.

However, I doubt if the drop in retail sales will be fully realised.

Syndicates, for example, could recruit more mainland parallel traders to make up the shortfall in goods being carried by individuals over the border since the new measures cap the frequency of visits and not the number of multi-entry visas issued. Individual parallel traders could also potentially carry more goods per trip with the exception of milk powder which remains capped at two cans or 1.8kg per visitor. Lastly, a greater number of Hong Kong resident parallel traders could simply take up the void left by their mainland counterparts. Under this scenario, this measure is effectively a zero sum game.

Unfortunately for local residents in border towns, this means that the latest measures are unlikely to have a significant impact on parallel traders or retail offerings.

[1] Parallel trading involves the purchase of goods in Hong Kong and subsequent selling on the Mainland for a price higher than in Hong Kong.

Subscribe

Login

Notify of

new follow-up comments new replies to my comments

Label

Name*

Email*

Website

Company

Δ

Label

Name*

Email*

Website

Δ

0 Comments

Inline Feedbacks

View all comments