Will Hong Kong’s mega infrastructure projects fuel retail sales?

April 13, 2018 / By  

The Hong Kong-Zhuhai-Macao Bridge (HZMB) and the Express Rail Link (XRL) are scheduled to open by 2Q18 and 3Q18, respectively. Both projects are expected to attract more tourists and provide a welcome boost to Hong Kong’s retail sector. But how much of an impact can we reasonably expect? To answer this question, we have tried to estimate the additional visitor numbers brought about by HZMB and XRL, which will not include the visitors diverted from other existing traffic and the natural growth of visitor numbers.

Calculation for HZMB is fairly straight-forward as Government projections on passenger numbers and its composition are available. By 2020, passenger numbers on the HZMB are expected to reach 19.1 million, of which, 2.28 million will be additional throughput induced by the new bridge. However, this figure includes both arrivals and departures of visitors and locals.

To estimate mainland visitor arrivals, we look at existing land and sea control points’ passenger compositions, which shows, based on Government data, approximately 18% of total throughput are visitor arrivals (for 2015). Applying the same ratio to HZMB, we estimate that the new bridge will induce an additional 420,041 visitors per year by 2020.

The XRL comprises Shuttle[1] and Long-Haul Service. Official projections on patronage are available for both but there is no passenger composition breakdown. We can, however, make a reasonable assumption that 20% of total throughput will be additional passengers induced by XRL – this is aligned with the findings in the official study[2]. As a result, the estimated additional throughput is 6.98 million and 1.47 million per year by 2020 for the Shuttle and Long-Haul Service, respectively.

With this in mind, we now can estimate how much of these figures are contributed by mainland visitor arrivals. For the Shuttle Service, we apply the same passenger composition of existing land and sea control points. For the Long-Haul Service, which provides longer distance transport, we use the figures for Hong Kong International Airport (28% of HKIA throughput in 2015 was visitor arrivals) as a proxy instead. Applying these ratios to the additional throughput figures derived, the XRL Shuttle and Long-Haul Service are expected to induce additional 1.26 million and 418,696 visitors per year respectively by 2020.

Altogether, the completion of the HZMB and XRL should induce an additional 2.1 million mainland visitors to the city per year by 2020 (Table 1), equivalent to just under 5% of total mainland visitor arrivals in 2017.

Table 1: Estimated Induced Additional Arrivals by HZMB and XRL
Source: LegCo, Central Policy Unit, Immigration Department, HKIA, JLL

While mainland tourists are still essential for the performance of Hong Kong’s retail sales, a weaker linkage between the two was seen in last few years with Chinese shoppers’ changing shopping pattern. Their shopping spending decreased to HKD 2,965/person per trip in 1H17 while spending on meals increased to HKD 455 – a trend that we expect to continue.

Combined with our estimation, the induced additional tourists by HZMB and XRL may contribute no more than HKD 6.2 billion additional retail sales in 2020, which would be an equivalent to 1.4% of total retail sales of 2017. Against this backdrop, we believe the completion of the two mega projects will indeed benefit Hong Kong’s retail industry, however, the impact would be modest.

[1] Shuttle Service includes travel between Hong Kong, Shenzhen, Humen and Guangzhou.
[2] “Making reference to global experience, induced patronage due to the commissioning of high speed rail can be as much as 20% or even 30% of the overall patronage”, LC Paper No. CB(1)503/09-10(02), LegCo, 2009

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