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Victims of the tourist squeeze

A policy aimed at making Hong Kong more accessible to mainland tourists may have succeeded too well, according to some of its previous backers
Amy Nip
Jul 06, 2012

As a way of reviving Hong Kong’s battered economy after the 2003 outbreak of severe acute respiratory syndrome, the Individual Visit Scheme was an almost immediate cure. It filled empty hotels, and restaurant owners and retailers rejoiced at the reappearance of travellers on the city’s once-deserted streets.

Over the nine years since, the scope of the scheme – which allows mainland tourists to travel to Hong Kong by themselves rather than in a tour group – has been expanded from the initial four cities to 49, making 270 million people eligible to visit Hong Kong.

The impact has been remarkable, with the Tourism Board reporting that 3.1 million visitors flooded in in January, up 23.9 per cent on the same period last year. They accounted for about three quarters of that month’s total of 4.14 million visitors.

In 2002 Hong Kong received 16.6 million visitors, of whom 6.9 million, or 41.6 per cent, were from the mainland. By last year the number had soared to 41.9 million, 67 per cent of whom came from the mainland.

But not everyone is happy with the fallout from the influx.

Bookshops have been replaced by outlets selling jewellery, watches and electronic appliances to the big spenders. Local mothers have difficulty buying milk formula – a sought-after commodity for mainlanders – and consumers confronted with rising inflation blame the tourists for soaring prices.

When the mainland’s simplified characters finally made it on to outdoor advertisements and restaurant menus, alongside the traditional ones preferred in Hong Kong, the anger intensified.

Hongkongers began calling the influx a cultural invasion, likening it to a plague of locusts.

No consultation was carried out before the government opened the gates in 2003 – and not that many people would have objected, given the prevailing economic slump.

Nevertheless, it was unusual for any policy with such a significant impact not to undergo a sustainability assessment first. Such studies have been mandatory since 2001, when the government adopted guidelines that require any new policy’s consequences for the economy, social infrastructure and cultural diversity to be taken into account.

The government’s argument was that the scheme was a timely measure that brought immediate benefits and was one of the most successful and welcome liberalisation measures adopted under Beijing and Hong Kong’s Closer Economic Partnership Arrangement.

According to James Tien Pei-chun, now chairman of the Tourism Board, the time has come to review a policy he once enthusiastically supported.

In March 2004, writing in this newspaper in his capacity as the chairman of the pro-business Liberal Party, Tien said: “Our economy is well on the way to recovery, thanks to the benefits from the Closer Economic Partnership Arrangement and the Individual Visit Scheme. At last, our property market is flourishing, the stock market is climbing and our consumption is rising, but it will be some time before these benefits reach the ordinary citizen.”

Eight years later, Tien believes the scheme needs to be reassessed.

“The new government will have to look into the problem,” he said. “There are an increasing number of conflicts as mainland Chinese integrate with Hong Kong society. It is necessary for the government to look into the positive and negative aspects of welcoming mainland tourists into the city.”

The economic benefits are obvious. Tourism is the fastest growing of Hong Kong’s four pillar industries, the others being financial services, professional services and trading and logistics. The tourism sector employed 218,100 people in 2010, making it a major employer, particularly for those with lower qualifications.

But the rising numbers are not without their drawbacks. Since 2009, when Shenzhen allowed its permanent residents to apply for multiple-entry visas, day-trippers increasingly target daily necessities rather than luxury goods.Tien said this was pushing up prices of basic commodities and fuelling conflict between locals and tourists.

Further growth of the tourism sector was also not guaranteed as infrastructure problems came into play. The supply of hotel rooms, for one, has been a bottleneck for the development of tourism, he said.

Accommodation used to be low on the mainlanders’ list of priorities, with 70 per cent of their budgets going to shopping and just 10 per cent to hotels, Tien said. Now it was becoming harder for them to find affordable lodgings, with even a room in the New Territories costing more than HK$1,000 a night.

When tourist numbers were soaring, hotel supply was growing more slowly: the number rose from 94, providing 37,277 rooms, to 184, with 61,828 rooms. The occupancy rate jumped from about 58 per cent to 89 per cent. Almost all hotels were packed last Christmas, and room rates, even in Chungking Mansion, went through the roof.

The Commerce Department expects that by 2016 there will be 254 hotels in the city, providing more than 74,000 rooms, but Tien warns that rising prices may nevertheless see tourists going elsewhere.

“If a trip to Hong Kong costs more than HK$10,000, why wouldn’t they go to Rome or Paris instead?” he said. “They could get luxury brands for less than in Hong Kong after getting refunds for value-added tax.”

Land supply has always been scarce. Tien said this meant it was necessary for the government to rethink its priorities. “Should the government allocate land for public housing and offices or malls and hotels for tourists?” he said.

Even one of the biggest beneficiaries of tourism – the retail industry – has begun to feel the pain.

Caroline Mak, chairwoman of the Retail Management Association, said the lack of new retail space plus rising demand for land had caused rents to more than double since the Individual Visit Scheme was introduced. Noonly were shops in busy tourist districts affected, the upward pressure was being felt in neighbouring communities.

The labour shortage had worsened, with an association survey showing that 8.9 per cent of vacancies remained unfilled for prolonged periods. Government statistics in March showed the retail industry employed 256,844.

Mak said rising rents made products more expensive, while labour shortages threatened the quality of service. Both trends would reduce Hong Kong’s attractiveness as a shopping paradise.

With many shops turning to jewellery, watches, electronics and international brands, the local touch is disappearing quickly, leaving visitors with “a homogeneous shopping experience”.

“Local shoppers have come to me complaining about the long distances they have to cover to buy daily necessities … even convenience stores cannot withstand the high rents,” Mak said.

It also made the retail industry – more than half of whose sales are made to tourists – more vulnerable to economic changes.

In the first five months of this year, the volume of sales of jewellery, watches and valuable gifts – previous must-haves for mainland tourists – dropped 2.9 per cent from a year ago in the face of global economic uncertainties and a cooling off of the mainland property market. Over the same period, total retail sales volume increased 9.1 per cent.

Mak said a committee should be set up to review retailing’s impact on other sectors, including advertising, transport and catering. Then it should work out long-term directions regarding the number of hotels required, labour supply and retail space.

“Now it’s time to stop and think about how we can achieve sustainable growth. We should say no quick cures,” she said.

Although tourism is a thriving sector in many parts of the world, figures suggest its impact and the friction it generates are far greater in Hong Kong than elsewhere.

Despite its small size, the number of visitors to Hong Kong is comparable to that to entire nations: last year it welcomed 40 million visitors, almost two thirds of the 62.7 million received by the United States.

The UN World Tourism Organisation has forecast that by 2020 China will be the fourth-biggest source of tourists after Germany, Japan and the United States. Hong Kong will rank fifth in terms of tourist arrivals, with the top four destinations being China, France, the United States and Spain.

“The ratio of tourists to locals in Hong Kong is very high,” said Terence Chong Tai-leung, associate professor of economics at the Chinese University of Hong Kong. The ratio is almost six to one for Hong Kong, which has a population of seven million.

Mainland tourists, with their massive spending power, inevitably raised the demand for goods and added to inflation, which was aggravated by the depreciation of the Hong Kong dollar against the yuan. Chong said this was not a pattern repeated elsewhere: those going to New York, for example, seldom devoted all their time to shopping.

Chong said government intervention in the supply of hotel rooms had to be handled with caution.

The availability of rooms would limit tourist numbers, meaning it was not necessary for the government to limit the numbers of visitors.

The importance of mainland visitors to Hong Kong is likely to continue growing, according to Tony Tse, assistant professor in Polytechnic University’s school of hotel and tourism management.

He said it would be wise to put more emphasis on other source markets so the city did not become over-reliant on one particular market. Apart from shopping and dining, there was also room for enhancing and showcasing its culture.

“Hong Kong is unique in being Chinese in its roots and having a strong British influence,” he said, and more could be done to showcase the city’s colonial past.

Although no sustainability study has been conducted, according to the Commerce and Economic Development Bureau the government has maintained close communication with mainland authorities on the Individual Visit Scheme’s implementation.

“Looking ahead, in considering whether to encourage more visitors, we should take into account whether we have enough facilities, such as the capacity of border control points and tourist attractions, supply of hotel rooms and transport,” a bureau spokesman said.

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