The sharp decline in the yuan and volatile stock markets have exacerbated retail and tourism woes in Hong Kong as a weak currency means it is no longer attractive for mainland visitors to shop and dine in the city.
Experts fear the falling yuan will further discourage mainland tourists. A total of 38.6 million visited the city in the first 11 months of 2015, accounting for about 77 per cent of all arrivals to Hong Kong.
“Mainland tourists will turn to places with weaker local currencies,” says Charlie Chen, head of Asian consumer research at French bank and financial services company BNP Paribas.
Although the yuan is falling against the US dollar, Chen says it is not necessarily depreciated when converted to other major currencies, like the South Korean won and Japanese yen. But the Hong Kong dollar is pegged to the US dollar, which means higher prices when converted to yuan.
“The luxury sectors will be hit the most if the yuan continues to depreciate,” Chen notes. He says people tend to buy expensive goods in places with weaker currencies than their own, as they can save more money in absolute terms.
Jewellery, watches, clocks and valuable gifts are already ranked the worst performer among all retail outlets in Hong Kong, with sales down 20.6 per cent in November on a yearly basis.
However, one of the city’s biggest jewellers, Chow Sang Sang, says it has not felt much of the heat from the fluctuation of the yuan since August, though it has constantly adjusted the exchange rate of the two currencies if customers want to pay in yuan instead of Hong Kong dollar in a bit to protect its profit margins.
“Mainland consumers still have a reason to buy gold in Hong Kong,” says Lau Hak-bun, the company’s director of Greater China, adding that the same item still costs at least 20 per cent more on mainland China despite the recent devaluation. But if the yuan falls a further 10 per cent from last year’s level, he “needs to look at the strategy again”.
Ricky Tse, chairman of the Hong Kong Inbound Tour Operators’ Association, also seems to be at ease. He says the impact of the yuan’s devaluation has already been “hedged” by the falling hotel rates and retail prices in the city in the past year.
Tse says that he has observed a drop of “at least 20 per cent” in hotel rates compared with a year ago.
“Cheaper hotel rates and more discounts to retail prices will attract more tourists to the city,” he says.
Despite the recent contraction of tourists from mainland China in – with arrivals of tour groups dipping by about 20 per cent last year – Tse notes that more hotel rooms have been booked by overseas tourists.
“Foreigners are very practical,” he says, adding that the number of tourists from Southeast Asia has remained stable despite the local currencies falling against the Hong Kong dollar.
