Hong Kong's Economy Will Be Hit By Travel Curbs Designed To Ease Tensions

Tom Burroughes

14 April 2015

A move by mainland China to limit the number of people visiting Hong Kong in the wake of protests will dent retail sales and economic growth in the city, economists at Bank of America Merrill Lynch say.

Residents from Shenzhen city will be allowed only one trip per week to nearby Hong Kong starting from yesterday, newswires quoted the Xinhua news agency – China’s official organisation – as saying. The report cited a statement from China’s Ministry of Public Security. This is the first time such controls have been imposed.

The restriction is designed, so it is said, to reduce tensions in Hong Kong because of confrontations that have taken place between protesters and people buying items in the city to resell on the mainland.

“We expect there will be a 230-basis point hit to retail sales growth and cut our 2015 retail sales forecast to -5.8 per cent (from -3.5 per cent),” Bank of America Merrill Lynch said in a note.

Hong Kong’s political situation has been volatile since last year when protesters took to the streets, objecting to attempts by the mainland to impose preferred candidates in local elections. The protests became so extensive that, on several days, numerous bank branches in the affected areas were temporarily closed, prompting the industry to warn that the disorder was tarnishing Hong Kong’s image.

BoA Merrill Lynch said there was a possibility that the impact of the travel controls may be less serious, however.

“We note that the actual hit may be less, since these visitors can raise their spending per visit to partly compensate for a lower number of visits. Also, the negative impact will probably kick in a few months later, as the cap will only be implemented on new applicants, while current permit holders can still come to HK with no restrictions until their permits expire (each permit has one year of validity),” it said.

“Further, the potential drop may be offset by stronger local domestic demand, as wealth effect of recent stock market rallies slowly gain traction in the economy. According to our estimate, total tourist spending takes up about 38.3 per cent of total retail sales while spending by local residents accounts for a larger proportion at about 61.7 per cent of total retail sales,” the bank added.

The change in policy would reduce the number of Chinese arrivals by 4.6 million visits, according to a Hong Kong official quoted by Bloomberg. Tourists from China jumped 16 per cent to 47 million in 2014 from a year earlier, the newswire said.