HONG KONG – Hong Kong has struggled to regain its appeal as a global retail paradise since the city reopened in 2023, underscoring the damage caused by years of isolation to its US$360 billion (S$488.3 billion) economy.

Tourists are not coming in the same numbers as they did before protests in 2019 and pandemic restrictions in the following years made Hong Kong a no-go zone.

Visitor arrivals in June were 42 per cent below figures in the same month in 2018. The result is weak consumer spending. The value of retail sales that month was the lowest for any June since 2011, after stripping out 2019 to 2022 figures.

The picture is a markedly different one from the last decade, when ever-rising numbers of mainland tourists crowded the city’s streets and clamoured for luxury goods.

In 2018, visitor arrivals totalled 65 million, up 11 per cent from the previous year, putting Hong Kong among the most popular tourist destinations globally.

That year, the city held the crown for having the world’s most expensive retail district as international brands competed to get a slice of that spending, a title it has since lost.

Hong Kong’s fading allure as a shopping hub is one of a number of challenges the former British colony faces as it seeks to resuscitate its economy and global image.

Its historically vibrant finance sector is shedding jobs amid a dearth of deals, while office rental prices have plunged after some businesses moved to Singapore.

Sanctions by the United States mean Hong Kong Chief Executive John Lee is unable to travel to many countries in the West, hobbling his ability to bolster ties in the wake of a controversial national security law.

Even if mainland tourist numbers pick up more substantially, Chinese visitors are unlikely to spend in the same way as before. Tumbling home prices and rising youth unemployment have shattered consumer confidence, while the economic outlook appears bleak.

A rapidly depreciating renminbi is also making Hong Kong more expensive. The local currency, which is pegged to the greenback, is trading near its strongest level versus the renminbi since 2008.

Many mainland tourists now prefer local cafes and restaurants as opposed to shelling out for fine dining and luxury goods, according to Mr Simon Wong, president of the Hong Kong Federation of Restaurants and Related Trades.

“On average, they spent around HK$500 (S$86.40) a day on food before Covid-19,” Mr Wong said. “Now, they spend slightly more than half that amount.”

As an illustration of how Hong Kong’s fortunes have dimmed, local media reported that a shop space in the tourism district of Tsim Sha Tsui was recently leased for 70 per cent less than what Burberry Group paid for it in 2014. The newest tenant is a Chinese jewellery brand.

Natixis senior economist Gary Ng said: “People are looking for experiences beyond shopping only, which is probably the old model that Hong Kong had.”

Weak spending by visitors is likely to weigh on the local economy, which is showing signs of strain after rebounding in the first quarter of 2023.

The government in August lowered the top end of its growth target for 2023, saying tourism and consumer spending would be major drivers of expansion for the rest of the year.

“Unless tourists come back to pre-2019 levels, Hong Kong’s growth will slow down in the second half,” said Dr Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis and a senior research fellow at European think-tank Bruegel.

The government launched a series of campaigns this year to attract visitors and repair the city’s image, including a “Hello Hong Kong” tourism campaign and airline ticket giveaways, and bringing film stars and influencers to Hong Kong.

Financial Secretary Paul Chan said in a recent blog post that the city needs to improve its competitiveness and ability to attract tourists, adding that the city will launch more events, such as night bazaars and exhibitions.

Aviation constraints may also be limiting travel. Hong Kong’s airport, previously the world’s third-busiest in terms of international passenger volume, is operating at 60 per cent of capacity compared with pre-Covid-19 levels, largely due to a shortage of workers. Hotels are also yet to return to the levels of service seen before the pandemic.

“Transportation and logistics capacity is greatly affecting how many tourists can come and stay overnight in Hong Kong,” said Mr Caspar Tsui, executive director of the Federation of Hong Kong Hotel Owners.

As tourism numbers remain low, Hong Kongers are not taking up the slack. Instead, they are choosing to travel to the mainland where goods and services are cheaper, helped by the slumping renminbi.

In June, there were some five million trips by locals to mainland China, about 80 per cent of the comparable period in 2018, according to data by the Census and Statistics Department.

“It is not worth shopping in Hong Kong,” said Ms Crystal Chan, a 22-year-old university student who has visited neighbouring Shenzhen five times in the past three months.

Even the city’s world-famous nightlife has been affected. Bars in the city’s commercial districts are taking in 70 per cent of the monthly revenue they used to make before the pandemic, according to Mr Chin Chun Wing, chairman of the Hong Kong Bar and Club Association.

Mr Cliff Wong, an employee at a local university, said he used to go to bars with friends as many as four times a week. After many of his friends left the city due to pandemic controls and political tensions, he now meets up less than once a week on average. BLOOMBERG