That ‘giant sucking sound’ again

More whining as 1.5 million Hongkongers leave the city – mostly over the border – during the Easter long weekend…

…[Restaurants lobby head] Simon Wong Ka-wo warned that the trend of people spending holidays in the mainland will rock the catering sector’s confidence in the short term.

…”Overall, the catering business dropped more than 30 percent compared to the Easter holiday last year, when many Hongkongers stayed despite the border reopening.”

…He urged the government to promote local consumption by hosting large-scale events across the city, not just in specific areas such as West Kowloon and Tsim Sha Tsui.

Wong said around 200 to 300 restaurants ceased operation over the past month and he believes the market will not improve this year.

…”I haven’t seen such a bad situation during holidays in Sai Kung for decades,” a restaurant owner said.

He added: “People either traveled overseas or visited the mainland – not many people stayed in Hong Kong. Authorities should pay attention to the situation. Building the Greater Bay Area is a good thing but we cannot push everyone there. What about Hong Kong?”

Restaurants demand more Mainland tourists – and government handouts in the form of ‘holiday vouchers’.

From Bloomberg…

The record outflow was largely the result of people heading across the border to the mainland and Macau, where they can enjoy cheaper and a larger variety of entertainment, food and shopping. Hong Kong residents last month made 8.3 million departures via border checkpoints — another record since at least 1997…

…Hong Kong is increasingly losing out to nearby Chinese cities including tech hub Shenzhen and casino town Macau as a high-speed rail and a mega cross-sea bridge make cross-border travel faster and easier than ever before. 

The FT notes that it’s not just retailing…

Container throughput in Hong Kong fell 14 per cent last year to 14.3mn twenty-foot equivalent units (TEUs), according to figures from maritime consultancy Drewry.

This was the biggest percentage drop among the world’s biggest ports last year. Hong Kong is now the 10th-largest port in the world by volume

… Once the world’s busiest port, according to Hong Kong government data, volumes have fallen as the city’s manufacturers shift to mainland China and competition from other Chinese ports rise, analysts said.

…“It is always inevitable that Hong Kong would contract as a port,” said Tim Huxley, chair of Hong Kong-based shipping investment company Mandarin Shipping.

(Let’s not have a huge port! Think what the city could do with all that space.)

From Wikipedia…

Arbitrage has the effect of causing prices in different markets to converge. As a result of arbitrage, the currency exchange rates, the price of commodities, and the price of securities in different markets tend to converge. The speed at which they do so is a measure of market efficiency.

Twenty years ago, Masters student Li Na at Lingnan U wrote a thesis titled ‘Price Convergence between Hong Kong and the Chinese Mainland’, saying… 

I … find … a strong border effect between Hong Kong and the mainland. The nature of such a border effect may be due to big income gaps between the two places … Looking into [the] future, one would have the confidence to say that the speed of price convergence might accelerate in future years, owing to the increased economic integration of Hong Kong and the mainland, and reduced income and productivity gap. 

Weakening the ‘border effect’ through ‘integration’ and better transport links is longstanding government policy. But it apparently never occurred to officials that Hong Kong’s costs might have to come down as a result. Their obsession with cramming more tourists into the city reflects an instinct to keep the gap in rents and labour costs intact (partly to keep land revenues high). But not only is Hong Kong overpriced (and overcrowded) – it’s becoming less and less cool…

As an SCMP op-ed puts it…

International visitors go to places to experience what locals enjoy – Bangkok and Taipei, with their famed night markets, are classic examples – and not some artificial tourist construct.

…Taxpayer-funded gimmicks such as monthly fireworks displays and drone shows – tired, clichéd “attractions” disdained anywhere above fourth-tier mainland Chinese municipalities – will achieve little.

Absent from current debates – or what pass for them – are serious evaluations of whether earlier tourism-industry formulas are now outdated. Expecting further growth from a clearly declining model by continuing to offer more of the same past offerings cannot guarantee any pathway to success.

Rather than fight cost adjustment, why not embrace it and take advantage of it? Imagine how much more vibrant and diversified the economy could be if the rents were lower.