Chinese tourists to HK's rescue

A Chinese tourist tries out a gold ring at a gold and jewelry shop in Hong Kong on Saturday. Tens of thousands of Chinese tourists have come to Hong Kong since Beijing eased travel restrictions last month. PHOTO: AP

Hong Kong's economy is expected to recover from the drastic impact of the SARS crisis faster than previously anticipated, with high hopes pinned on cash-rich visitors from China.

Hong Kong was second only to China in being the world's most badly hit region by the SARS outbreak, which killed 297 people here and infected close to 1,800 before being contained in late June.

But with the relaxation of regulations by Beijing allowing the arrival of the first individual tourists from China's richest province, Guangdong, things have begun to change for the better in the SAR, which is facing a HK$68 billion (US$7.8 billion) deficit this year.

Hotels have removed discounted room rate signs, replacing them with full occupancy notices.

And in recent weeks, many restaurants and shops have undergone renovations to welcome the hordes of visitors expected from China.

On a crowded street in North Point, at least three restaurants and four other stores were carrying out renovations after shutting down during the height of the SARS epidemic which began in March.

"It is a great relief ... the economy will turn for the better," said a money exchanger overseeing redecorations, who requested anonymity.

Local papers have reported the activities of the rich mainlanders extensively, noting that travel and tourism -- those industries worst hit by SARS, were making some of the strongest recoveries.

The case of a Chinese "big spender" who spent HK$2 million (US$256,460) buying watches, and that of another who rolled out HK$2.5 million to buy four flats, all in cash, were splashed across most papers.

The influx from across the border has stirred up a euphoria, with restaurants and retailers claiming business is better than usual, raising hopes that other business sectors, including the all-important property sector, may also revive.

William Mark, president of the Federation of Hong Kong Restaurant Owners, also noted the bustling cacophony of ongoing renovations, pointing out some 100 restaurants were preparing to reopen to cater to Chinese tourists.

The central government has also allowed visitors from Beijing and Shanghai to visit Hong Kong as individuals instead of only as part of a tour group from next month, a move which tourism officials have estimated could bring an extra US$6.4 billion in revenue.

Anita Bagaman, manager of Hong Kong Retail Association Management, welcomed the move, saying "it is positive to the beleaguered economy."

"Some retail businesses, such as those with brand names, or those in jewelery and electronics, will see a faster recovery," she said.

Bagaman said retail sales had plunged 50 percent since the SARS outbreak in Hong Kong, which is a magnet for global shopping.

Overall, the retail industry has plunged more than 20 percent in terms of sales since 1997, following the Asian financial crisis, which eroded personal wealth and pushed up unemployment.

Consumer prices fell for the 57th consecutive month last month dropping by 4.0 percent compared with the same month last year, driven down by businesses offering heavy discounts to try to win back customers after the end of the SARS outbreak.

June retail sales fell 6.4 percent from a year earlier after a fall of 11.1 percent in May.

"The most important [thing] is reviving local consumer confidence," she said, pointing out unemployment reached a record 8.7 percent high in the three months to July -- with some 309,000 of Hong Kong's 3.51-million strong labor force out of work.

Retailing is Hong Kong's second largest industry (after the import and export trade) in terms of sales turnover and number of employees.

Economists are optimistic the influx of Chinese tourists as well as the Closer Economic Partnership Agreement (CEPA), which was signed on June 30 between Hong Kong and China, will give a much needed boost to the local economy.

The CEPA agreement grants Hong Kong goods zero tariff treatment starting next year and will give the city easier access to the huge China market.

George Leung, HSBC chief economist, is forecasting GDP growth of 0.5 percent this year and 1.3 percent next year in the light of the sharp rebound from SARS and the expected flood of tourists.

"We think the numbers should be revised upwards to reflect the recent measures," said Leung.

The Hong Kong government was forced to halve this year's GDP forecast to 1.5 percent from the previous 3.0 percent.