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HK shoppers flock to Shenzhen for low prices

Chris Bowers says she bought a purple three-piece tailored suit for the equivalent of US$30 on her last trip across the Chinese border to Shenzhen. At home in Hong Kong, that might not cover the cost of a T-shirt.

"It's cheap in Shenzhen," said Bowers, who owns a lingerie exporting company and also sings in a rock band. "You pay probably only 10 percent of what you'd pay in Hong Kong."

Hong Kong residents crossed the border 16 million times last year in search of bargains ranging from fake Prada bags to custom-made curtains. The exodus underlines a Chinese cost advantage that is blunting the city's competitive edge, deepening a retail spending slump and delaying an economic rebound.

"All of our customers are from Hong Kong," said Dai Jie, who opened Big Shanghai Xing Gang Tailor shop in Lowu Commercial Center, next to the Shenzhen train station, in 1997.

Shenzhen was little more than a market town when China's then-leader Deng Xiaoping (鄧小平) designated it a Special Economic Zone two decades ago, throwing it open to foreign investment. Now, it's a city of 4.3 million people, whose economy expanded 14.3 percent in the first quarter from a year earlier, almost double China's national average.

Retail sales in Shenzhen rose 11 percent last quarter from a year ago, state media reported. Sales fell 3.7 percent in the same period in Hong Kong, where the jobless rate is at a record, wages are falling and growth is stalled.

Economists say low cross-border prices are helping bring down costs in Hong Kong, which is still among the world's most expensive cities even after consumer prices have fallen about 10 percent in the past 3 1/2 years.

The disconnection won't be smoothed for at least three or four more years, said Tim Condon, chief economist at ING Barings.

"It's an important reason for Hong Kong deflation," he said.

Shenzhen's five-story Lowu mall is the first stop for many out-of-town shoppers. It's a far cry from the marble and fountains of Pacific Place and other luxury malls in Hong Kong.

Stalls overflow with knockoff Louis Vuitton, Prada and Gucci purses for US$6 or less. Stores offer tailoring, massages, dried Chinese herbs and cheap jade. Few shopkeepers speak English, all prefer Hong Kong dollars to Chinese yuan -- and bargaining is expected.

In Hong Kong, retailers can't afford to offer such deals, mostly because their rents are among the highest in the world.

"Hong Kong has a much higher cost structure in terms of the retail industry," said Anita Bagaman, executive director of the Hong Kong Retail Management Association. "In times of economic difficulties, people look to pricing first."

Shopping isn't the only attraction that Shenzhen holds for Hong Kong residents. Many also buy property there.

The number of Shenzhen properties sold to Hong Kong buyers rose 29 percent last year to 9,750 units worth US$1.1 billion, according to Centaline Property Agency. The average price in Shenzhen is about HK$509 per square foot, compared with HK$4,000 in Hong Kong, Vigers Hong Kong Ltd estimates.

Granted, Shenzhen's deals come at the price of convenience.

For Hong Kong shoppers, a 45-minute train ride to the border is the easy part. From there, it can take hours to clear immigration on weekends and holidays, when as many as half a million people cross the border in a day.

Tailors also require customers to return at least once for a fitting before pronouncing a suit or shirt finished. That can mean two or three visits -- each of them lasting at least a full day -- before it's done. Some Hong Kong residents never make it back to the shop to pick up their clothes.

Hong Kong shopkeepers also maintain that Shenzen's prices are low for good reason, so there's little chance it will dethrone the former British colony as one of Asia's prime shopping destinations, said Yu Pang Chun, chairman of the Hong Kong Retail Management Association.

"People are realizing the quality of the products in Shenzhen is not what they expected," he said. A three-year bout of deflation in Hong Kong also means the city is becoming more affordable, Yu said.

In the meantime, Bowers, the founder of Sisters of Sharon, a popular Hong Kong band, travels to Shenzhen twice a month for costumes to use when she performs with her new band, Thinking Out Loud. She snagged a red Tina Turner-style wig on her last trip for HK$150 (US$20) -- half the asking price.
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