Amid a boisterous debate in Hong Kong about the future of Mainland Chinese tourist arrivals, retail sales plunged 9.8% y-o-y in April and Mainland Chinese tourist arrivals during the Dragon Boat Festival were down 2.5% y-o-y. The debate centres on the strains on Hong Kong’s infrastructure from the massive number of visitors and calls to either increase the city’s capacity to host tourists or limit their numbers. One idea put forward for public discussion by the government is to cut Mainland Chinese tourist numbers by 20%, which will surely impact retail sales further and have a knock-on effect to the economy.

In particular, there are strong voices for the government to cancel the One-year Multiple-entry Individual Visit Scheme (IVS) Endorsements, since day-trippers travelling on multiple-entry IVS (11.1 million in 2013) are the ones blamed most frequently for disrupting the lives of local Hongkongers and they spend much less than those who stay overnight.

Coincidentally, 11.1 million is equivalent to 20% of 2013’s 54.3 million total number of tourist arrivals. If the government proceeds with this cut, using the average Mainland Chinese day-tripper shopping spend of HKD 2,515, the city stands to lose about HK 27.9 billion in retail sales value, which is equivalent to 5.6% of the 2013 total.

Based on an analysis of the historical trend of IVS visitors and sales value of different types of retail outlets, the following types of outlets, which have the strongest relationship with IVS visitors, are most likely to be hit hardest if the cut proceeds:

• Supermarkets;
• Chinese drugs and herbs;
• Jewellery, watches and clocks and valuable gifts;
• Clothing, footwear and allied products;
• Medicines and cosmetics; and
• Department stores

A cut in IVS visitors would surely increase retail property vacancy and put pressure on rents, and the knock-on effect through lower retail sales would surely have a broader impact on employment outside the inbound tourism related businesses. While there may be a need to adjust policies, I hope the government will be able to find a balance between the strains and economic benefits brought by the Mainland Chinese visitors. Furthermore, we should have confidence that the free market will shape the flow of people too.

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