Hong Kong businesses welcome China’s reopening, but warn there’s still a long way to go

Michelle Toh, CNN

This week, Kiki Yang brought an empty green suitcase from Shenzhen to Hong Kong to load new purchases for her family and friends.

“I’ve been shopping a lot these days,” she told CNN on Tuesday, pointing to her luggage, which she said was full of clothes, medicines and electronics.

Yang is one of tens of thousands of visitors from mainland China expected to be welcomed into Hong Kong this week as one of the world’s toughest border closures ends. On Sunday, residents of Hong Kong and mainland China were allowed to resume non-quarantined two-way travel after three years, albeit on a limited basis.

For businesses like cosmetics retail giant Sa Sa, the moment couldn’t come sooner: Danny Ho, its chief financial officer, told CNN mainland Chinese visitors typically make up a whopping 70% of its business.

“Basically, that number dropped to almost zero as soon as border controls [were] on site,” he said, referring to rules that came into effect in early 2020 that required arriving visitors to self-isolate in hotel rooms.

Not surprisingly, Sa Sa’s business plummeted. Once Asia’s largest cosmetics retailer, the chain has slipped to fourth place behind competitors like LVMH’s Sephora, according to research firm Euromonitor International.

Sa Sa, whose main market is Hong Kong and Macau combined, has cut sales by about half since 2019. The company has tried to stem the bleeding by closing stores, investing online and diversifying its product range, including introducing non-beauty products such as face masks and Covid-19 tests, Ho said.

Now things are on the mend.

“I can tell you, everyone in Hong Kong retail has been looking forward to this event,” said Ho, a member of the Hong Kong Retail Management Association, referring to the opening of the border.

The move is Hong Kong’s latest attempt to regain its status as a global business hub. For decades, the former British colony has been seen as a friendly gateway to mainland China’s sprawling market, but its economy has suffered during the pandemic as Covid-19 restrictions came into effect.

Hong Kong’s economy fell into recession in 2022, according to government forecasts, and contracted by 3.2% for the entire year, according to government estimates.

Cross-border travel restrictions were the biggest concern for businesses across the city, according to a survey by the Hong Kong General Chamber of Commerce released on Monday.

“The worst is behind us,” the group said in a statement, though it warned of more prolonged headwinds.

First days

Companies and economists are in no hurry to update their forecasts.

“The recovery will definitely be significant in the first half of this year. We will see that the situation will indeed improve, but there will not be a full recovery,” said Sheana Yue, a China economist at Capital Economics.

Yue said hotels and restaurants could see a surge soon, especially after the “backlog of people getting their visas” from mainland China was cleared.

Currently, as part of the gradual reopening, Hong Kong has a quota of 60,000 visitors arriving from mainland China every day.

But so far, fewer than 6,000 people in that category have arrived daily, according to government statistics. Just under 21,600 people from mainland China arrived in the city Sunday through Wednesday in the first four days of reopening, according to the immigration department.

While Yue expects Hong Kong to emerge from recession this quarter, she estimates it could take the city a full year to recover, possibly by the first quarter of 2024.

She added that this is when the economy could finally return to the levels of early 2019, before it was hit hard by mass protests and the pandemic.

Louise Lu, senior economist at Oxford Economics, also said it would take some time for Hong Kong to turn the tide, especially as it continues to struggle with “significant economic challenges”, including low house prices and the impact of high U.S. interest rates. . .

But once all border restrictions are lifted, “Hong Kong will be the biggest beneficiary of China’s reopening in the region,” she told CNN.

Ho, Sasa’s chief executive, also did not raise sales forecasts for this quarter, though he said the company is looking forward to growth during the upcoming Lunar New Year holiday.

The retailer has prepared special discount coupons on Alipay, Alibaba’s ubiquitous digital payment system, to offer mainland Chinese shoppers coming to the city to shop, he said, though it’s too early to see the immediate impact of their return.

“We have to wait and see how many actually recover,” Ho added.

– CNN’s Mark Stewart, Sandy Sidhu, Jenny Chen, Kathleen Magramo and Simone McCarthy contributed to this report.

The-CNN-Wire
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Hong Kong postal companies welcome the opening of China, but warn that there is still a long way to go. First appeared on KION546.

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