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Hong Kong’s $4.6 billion spending stimulus can’t revive retail without tourists

A man waves to his family members before departing to United Kingdom at the Hong Kong International Airport in Hong Kong, China June 30, 2021. REUTERS/Tyrone Siu
Reuters/Tyrone Siu
More departures than arrivals?

After studying cash transfer programs conducted by its neighbors, Hong Kong is experimenting with putting money in people’s hands to help its struggling retailers.

More than 6 million people have registered to receive Hong Kong’s HK$5000 (US$640) spending vouchers, and will start receiving their credits in one of three mobile wallets, or on their Octopus metro cards, from Aug. 1. These can then be used to spend at any local merchant (bills and school fees are excluded).

The program is quite generous—any permanent resident over 18 in the city of 7.6 million can apply if they’ve been in the city continuously for at least two years, including multiple people in the same family. Newly arrived migrants from mainland China are also eligible.

But the stimulus can only go so far without tourist spending.

How much can local spending help Hong Kong’s economy?

In general, local spending has been more resilient than expected. Although retail spending dropped by 33% in the city the first quarter of 2020, compared with the same quarter in 2019, that improved by the last quarter of the year to only a 9% drop. And if local spending alone is looked at, the last months of 2020 showed that spending increased compared with 2019.

The voucher program will help. While it will cost the government HK$36 billion (US$4.6 billion) in this year’s budget, it is expected to contribute 0.7% to the city’s GDP in 2021. Unlike the US stimulus checks which were basically cash in hand to spend or save, this program is more use it or lose it—the first set of vouchers have to be used by a certain date.

There is a long way to go, however, before retail sales reach pre-pandemic levels, the government has acknowledged.

That’s because of the spending shortfall created by missing tourists.

A key pillar of Hong Kong’s economy

In 2018, the last really good year for tourism in Hong Kong, the city got nearly 65 million visitors. They contributed 4.5% of Hong Kong’s GDP and employed more than 250,000 people. The city has long been a shopping destination for high-spending travelers, from the mainland, and around the world—since 2010, visitor spending has accounted for about 30% to 40% of overall retail spending.

But protests in 2019 led arrivals to drop sharply to 55 million, as mainland travelers stayed away, while in March 2020, with the spread of Covid-19, Hong Kong barred tourists altogether. In 2020, only around 3 million tourists visited, mostly in the first months of the year.

Without its usual influx of travelers, Hong Kong’s total retail sales declined 24% in value compared with 2019, and the economy as whole contracted 6.1%.

Now, even as the local economy gains momentum, the tourism industry is still stuck. From March to May, the city’s overall unemployment rate dropped from 6.4% to 6%. However unemployment remained at 9.4% in tourism-related sectors such as retail, accommodation, and food services.

Private consumption hasn’t rebounded enough to offset the drop in tourists. It showed a 1.6% increase in the first quarter this year after contracting throughout 2020. The figure shows that local “spending sentiment remains bleak,” wrote Annie Yau Tse, the chairman of Hong Kong Retail Management Association, in a letter published in May. “The full recovery of the local economy and the retail market will hinge on the containment of the pandemic.”

Hong Kong takes baby steps to reopening

Like many places in Asia, Hong Kong adopted a “Covid-zero” policy, a strategy that involves doing everything possible to bring new infections close to zero. That has included some of the strictest travel rules globally, including a three-week mandatory hotel quarantine.

In June, the government announced it would reduce the hotel quarantine to 7 days for fully vaccinated travelers, although this does not apply for passengers from countries classified as high-risk by Hong Kong, such as India, and the Philippines. As of July, due to concerns over the more contagious Delta variant, the UK has also been added to that list.

But bigger efforts to restart tourism, such as the Hong Kong-Singapore travel bubble, haven’t materialized. A start date has been announced more than once and then canceled at the last moment. This week the Hong Kong government said conditions weren’t right for the bubble. Hong Kong is also in discussions with the nearby autonomous territory of Macau on easing travel restrictions on both sides, but even that hasn’t happened yet.

“We should start somewhere,” said Haiyan Song, associate dean of Hong Kong Polytechnic’s school of tourism and hotel management. “Once Macau is open and the Covid situation is controlled between Macau and Hong Kong, it will lead to possible introduction of other travel bubbles.”

But it’s not so clear that travel bubbles beget more bubbles. Any reopening could be quickly called off if cases rise, as has happened to the New Zealand-Australia bubble, with Sydney contending with a Delta-driven rise in cases.

A major challenge for Hong Kong, according to Song, is that its vaccine coverage is relatively low. So far, only a quarter of the population has been fully vaccinated. Song says at least 60% to 70% of the population needs to be inoculated for tourism to completely reopen.

Song has worked on three forecast scenarios for Hong Kong’s tourism recovery, which will depend on additional Covid-19 waves or new mutations of the virus.

“In our mild forecast, tourism in Hong Kong will return to pre-pandemic levels by the end of 2022,” Song said. In the severe scenario, Hong Kong’s tourism and consequently, its retail industry, may only fully recover in 2023.

Even once tourism is open, other factors could dampen the numbers of arrivals. Mainland Chinese tourists could have lingering reservations about travel to the city because of the protests of 2019, while some travelers from elsewhere could feel uncomfortable about being tourists in a city in the grip of a political crackdown.

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