Global Economics

Chinese Tourists Spend Big in Hong Kong


Powered by a strong yuan, mainlanders are flocking to Hong Kong, which has no sales tax, to snap up luxury goods and visit theme parks

Shopping in Hong Kong can be quite a workout for twentysomething Lucia Jiao. Carrying four heavy bags filled with bags and clothes bought from Gucci (GUCG) and Christian Dior, the advertising executive from Shanghai will "spend until my credit cards max out," she says as she heads into a Louis Vuitton shop in Central, the city's trendy financial and luxury shopping district.

Turn to your left and right in any high-end store in Central, and chances are you will see Chinese tourists like Jiao, for whom the plunge in the U.S. dollar has made Hong Kong an even more attractive destination. The yuan, China's currency, has appreciated 9.7% against the greenback in the past 12 months. Since Hong Kong's dollar is linked to the U.S. currency, China's nouveaux riches find their money goes further now in the former British colony.

Easily spotted from across the mall, the typical mainland Chinese shopper is usually decked out in an outfit of matching color and matching brand and carrying possibly five or more shopping bags from the most expensive stores. Many are repeat visitors. Bernice Yang, a 24-year-old university student, travels to Hong Kong from nearby Shenzhen in China at least once a month to spend around $500 a pop on branded clothes, cosmetics, and bags. Since Hong Kong has no sales tax, she says, luxury goods can be 10%-20% cheaper than in China, which raised its taxes on cosmetics from 20% to 50% last year.

Favoring Luxury Goods

While it's obvious the number of Chinese shoppers in Hong Kong has been growing steadily for years, drawn by the greater supply of goods and the absence of sales tax, more recently visitors like Yang are making their presence felt more strongly in the retail sector. According to figures released by the Hong Kong Tourism Board, during the first half of 2008, same-day visitors made up close to half of all visitor arrivals from mainland China this year, up from 41% last year. In the same period, same-day visitors from China also increased by a stunning 22.2% compared to a paltry 3.1% increase in overnight visitors, who make up the rest of all visitor arrivals.

While overnight visitors mostly consist of tourists who spend their time touring Hong Kong and visiting friends and relatives, most of these same-day travelers come to Hong Kong with the specific purpose of spending. That's one reason single-day Chinese tourists had the highest per capita spending in 2007 with an average of $235, up 19% from the year before.

Visitors from the mainland who stay for a few days have doubled in the past five years and have made up around 55% of all overnight visitor arrivals from different market regions every year since 2003. Overnight visitors' per-capita spending from China grew 10%, to $665 last year. Although that number is 10% less than that of American tourists (who lead the spending list), the Chinese visitors tend to stay in less expensive hotels and dedicate more of their spending to luxury goods, devoting a substantial 73% of their outlay to shopping—the highest among all market regions. "An average customer from China who comes into our store can spend thousands or even millions," says Nelson Wan, an assistant manager in Central's Chow Tai Fook, a Hong Kong-based jewelry franchise popular with mainland visitors. About 35% of Chow Tai Fook's business comes from Chinese tourists and the company has seen approximately 30% growth in sales to these Chinese tourists last year.

Many mainland visitors are increasingly entering Hong Kong individually rather than in tourist groups. Before Beijing's Individual Visit Scheme (IVS) begun in July 2003, the Chinese government allowed mainlanders to enter Hong Kong only in tour groups or for business. In 2003, just 7.8% of all Chinese visitors entered Hong Kong through the IVS, but in 2007 that number grew to 55% of visitors.

Theme parks popular

Luxury shopping outlets are not the only beneficiaries. Popular theme park destination Ocean Park Hong Kong has also seen an increase in travelers from mainland China in the last few years. Although the mainlanders consistently make up 45% of all Ocean Park visitors, their attendance hit a high of 2.25 million last year, up 70% from 2003, the year the IVS was first implemented. At Hong Kong Disneyland, the number of mainland Chinese bringing their families peaks at more than 50% of total attendance during the Chinese New Year school holidays, says a Hong Kong Disneyland spokesperson.

Hong Kong also has a variety of luxury boutiques, five-star hotels, and exclusive restaurants that cater to the rapidly growing coterie of the affluent in China (BusinessWeek.com, 07/02/08). "A lot more travelers are comfortable traveling here by themselves," explains Catherine Scown, director of marketing at the luxury Four Seasons Hotel in Central. While most mainlanders still tend to stay in tourist hotels, Scown predicts the Chinese market for five-star hotels will see an increase of 10%-20% in the next year.

Many businesses are making plans to accommodate the growing group of visitors by making sure their employees are conversant in Mandarin in addition to English and Cantonese. The Peninsula Hotel has recently gone so far as to woo wealthy mainlanders by taking its marketing road shows to China to promoting its latest happenings.

Sabrina Chan is a reporter for BusinessWeek in Hong Kong.

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