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Hong Kong Mulls Curbing Tourist Arrivals Amid Discontent

By Billy Chan, Moxy Ying and Vinicy Chan
May 27, 2014 6:37 AM EDT 74 Comments

Hong Kong may limit tourist arrivals as an influx of Chinese visitors stokes discontent, Chief Executive Leung Chun-ying said.

The city may need measures to “slow the gains in tourist arrivals or stop increases, or cut visitors,” Leung told reporters in Hong Kong today. “We’re making studies and will seek feedback.”

Public discontent in Hong Kong has given rise to street protests as mainland tourists pour into the city, snapping up homes, designer handbags and daily necessities. Limiting arrivals in response could crimp the city’s retail sales, about a third of which were accounted for by Chinese visitors in 2013.

“This may send a wrong signal to the general public in China that Hong Kong is no longer welcoming them,” Raymond Yeung, a senior economist at Australia & New Zealand Banking Group Ltd., said by phone today. “If the government decides to impose a quota on mainland visitors, the impact would be beyond the service sector.”

A Hong Kong retail group opposed the proposed curb, saying it violates the city’s free market policy and jeopardizes more than 267,000 jobs in the retail industry.

“The government should expand retail space, build more infrastructure as well as extending tourist attractions,” Hong Kong Retail Management Association said in an e-mailed statement today.

Tourist Arrivals

Protesters marched through Hong Kong streets earlier this year, demanding the government limit visitors from the mainland, who accounted for 75 percent of the city’s 54.3 million tourist arrivals in 2013.

Tourist arrivals jumped 12 percent last year, the fourth consecutive year of double-digit gains, bolstering retailers and landlords including Wharf Holdings Ltd. (4) and Luk Fook Holdings Ltd. (590) Travelers from the mainland accounted for 34 percent of Hong Kong’s retail sales last year, according to a May 8 research note from Bank of America Corp.’s Merrill Lynch & Co.

Wharf, which owns the Harbour City and Times Square shopping malls, fell 3.5 percent to close at HK$53.15 in Hong Kong trading. The stock was cut to neutral from buy at Merrill Lynch & Co. on concerns that the proposed restrictions may be more severe than expected. Hong Kong property developer Hysan Development Co. Ltd. (14) also closed 3.5 percent lower.

Mainland Chinese visitor spending accounts for almost 50 percent of Harbour City and about 35 to 40 percent of Time Square’s sales, Karl Choi, an analyst at the bank, wrote in a research note published today.

Huge Impact

Chow Tai Fook Jewellery Group Ltd. (1929), the world’s largest jewelry chain, declined 3.2 percent to HK$10.22, while smaller rival Luk Fook dropped 0.6 percent to HK$19.98.

“The impact will be huge if government cuts visitors at the moment, as Hong Kong’s retail market has already worsened this year,” Wong Wai Sheung, chairman of Luk Fook, said in a phone interview today. “It would be hard for retailers to survive if that happens.”

The Hong Kong government said earlier this year the city may have more than 70 million tourist arrivals in 2017. Tourism accounted for 4.5 percent of the city’s economy in 2011, according to a paper Leung discussed with a committee yesterday.

“I don’t think it’s good timing to implement such changes now,” Alison Law, head of regional consumer research at Daiwa Securities Capital Markets, said by phone today.

Hong Kong’s retail sales grew 6.8 percent in the last quarter of 2013, the slowest since the July-to-September quarter of 2012. Sales of jewelry, watches and clocks, and valuable gifts fell by 8.9 percent in March from a year earlier.

“Sales of jewelry and watches have already dropped and domestic consumption is also weak,” Law added. “It doesn’t make sense to restrict tourist arrivals.”

To contact the reporters on this story: Billy Chan in Hong Kong at bchan101@bloomberg.net; Moxy Ying in Hong Kong at yying13@bloomberg.net; Vinicy Chan in Hong Kong at vchan91@bloomberg.net

To contact the editors responsible for this story: Stephanie Wong at swong139@bloomberg.net Terje Langeland, Thomas Mulier

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