Over the past decade, Hong Kong’s retail sales and incoming visitor trends have moved in tandem, and retailers have benefited from the influx of tourists (see Chart 1). However, given the evolving behaviours of visitors, Hong Kong must diversify its strengths from merely being a shopping paradise if it wishes to remain an attractive destination.
Slight improvement in visitor numbers
With incoming visitors recording two consecutive years of annual declines (-4.5% and -2.5% YoY in 2016 and 2015 respectively), aggregate tourism receipts, as reported by the Hong Kong Tourism Board, also declined for two years in a row (-10.1% and -8.4% YoY in 2016 and 2015 respectively). As visitor arrivals improved moderately (+2.7% YoY) through the first 10 months of the year, it is expected that overall tourism receipts may improve in 2017 as well.
Mainland visitors have been the key contributor to the path of recovery. Indeed, the 3.1% YoY increase in visitors from Mainland China accounted for 88% of the total net increase of visitor numbers during the first 10 months (see Table 1). Hong Kong also received notably more visitors from Japan (15.2% YoY), the Philippines (14. 4%) and South Korea (8.1% YoY) during the first 10 months of 2017.
On the other hand, the growth of European visitors remained negligible, while declines in visitors from other key markets – such as Singapore (-5.1%), Australia (-3.1%) and Thailand (-6%) – were recorded. Meanwhile, with the U.S. Federal Reserve projected to raise interest rate three times in 2018, the Hong Kong dollar is likely to remain strong, making a visit to Hong Kong more costly. As a result, we are cautious about the sustainability of tourism’s recent moderate recovery.
Zooming in on the spending behaviour of Mainland Chinese visitors – who account for over 76% of the total incoming visitors – we have found that there has been a considerable decline (-8 percentage points compared to 2007) in the portion of expenditure allocated to shopping over the past decade (see Chart 2).
In our view, such a change in Mainland consumer behaviours was due in part to the removal and reduction of import tariffs on certain products, such as baby formula milk and diapers. Another factor was the robust momentum of online retail sales (+28.8% YoY in 10M2017, after growing 25.6% and 31.6% YoY in 2016 and 2015 respectively) that has allowed quality products to be delivered to the Mainland directly.
Moreover, Mainland travellers are looking for satisfaction in other aspects of travel. According to a report published by Oliver Wyman in July, shopping slipped to the third biggest motivation – from second in 2016 – for travelling, behind sightseeing, and recreation and entertainment in 2017. At the same time, the report suggested that travellers who ranked shopping as the main reason to travel were “generally from lower income brackets than those who ranked shopping as the second and third motivations to travel”. The report noted that the travellers who had the highest intention to shop tended not to be the highest spenders in either shopping or total travel spending.
Based on such findings, Hong Kong, as a whole, will need to reposition itself to cater for such developments.
According to Oliver Wyman’s report, 55% of the respondents suggested that their impression of Hong Kong had improved, and they also considered the city as a “good value” travel destination. This should help boost tourism related industries in the near term, and partly justifies the optimism reported among relevant businesses in the Government’s Business Tendency Survey.
Striking a balance between optimistic factors and potential drags (such as stronger Hong Kong dollar and the improving attractiveness of other destinations), we expect Hong Kong’s incoming visitor to see modest growth and expand around 2.5% YoY in 2018 as the most likely scenario (see Chart 3).
Looking beyond 2018, on the back of the proliferation of cross-border e-commerce, shopping will no longer be the key motivation for tourists to visit Hong Kong. Mainland visitors may choose other destinations if we cannot offer them distinct sightseeing, recreation and entertainment experiences.
Therefore, the Government should seriously consider engaging with the business community to come up with more attractions and events that will draw high value tourists in the medium term.
 The correlation coefficient between the growth of retail sales and incoming visitors was 0.77 between 2007 and October 2017.
 FOMC Meeting Materials (December 2017)
 Prepare for Turbulence: The Chinese Traveler of Today and Tomorrow
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