Hong Kong hopes for recovery as Covid-19 recedes

HONG KONG – On a recent Saturday evening in Tsim Sha Tsui, a harbourfront district popular with tourists for its mix of luxury boutiques and more affordable offerings, nearly one in three shops on main thoroughfare Nathan Road was shuttered.

Streets that were once thronged by tourists with trolley bags full of fresh purchases now see only a fraction of those crowds, while shopkeepers wonder when the customers will return. 

Three weeks after the financial hub completely

reopened its borders with mainland China on Feb 6,

travellers are trickling back as the city begins to find its post-pandemic footing.

Hong Kong has also announced it would be

scrapping its mask mandate from Wednesday.

The city has had a rough few years. It used to welcome over 70 million visitors annually before Covid-19; more than 90 per cent of its gross domestic product is dependent on the service sector. 

In the summer of 2019, demonstrations against an extradition Bill escalated into large-scale, at times violent, anti-government protests that went on for months and at times crippled the city, keeping away tourists and denting business sentiment. 

That year, the city

saw its economy contract

for the first time in a decade. 

Then in the past three years, the coronavirus pandemic slowed human traffic between Hong Kong and mainland China to a trickle. People on both sides – students, workers, business executives, even tourists – have been forced to find new ways to cope with the “new normal”. Classes, business conferences and even shopping went online; but in a city that prides itself on connectivity, its isolation amid Covid-19 took a toll. 

Harsh pandemic control measures and a sweeping national security law have driven expatriates and Hong Kongers alike out of the city, with its population falling for the past three years.

According to official statistics, 137,200 residents left the city between 2020 and 2022. The number, however, does not differentiate between locals and expatriates.

The retail sector, which has seen record vacancies in the past three years, has been hit hard. 

Retail sales dipped by US$13.4 billion (S$18.1 billion) in 2020, official statistics showed. That was 24.3 per cent lower compared with the year before.

While the sector mounted a modest recovery of 8.1 per cent, or US$3.4 billion, in 2021, sales continued to dip for the first 11 months of 2022.

Heavily dependent on the mainland Chinese market, which made up more than 70 per cent of the city’s tourist traffic pre-pandemic, many high street shops have gone out of business, while landlords from Central to Tsuen Wan struggle to find new tenants. 

“I have seen so many other shops around here close because the businesses can no longer afford to pay rent,” said Mr Amir Kassim, a shop assistant at an electronics stall in Chungking Mansions.

“Luckily for us, my uncle owns the unit, so we don’t have to worry about rent. Now that tourists are coming back, hopefully, things will pick up soon.”

Previously a hot spot for backpackers and tourists looking for a good deal on electronics and off-brand watches, the building was largely empty on a Saturday evening except for a few shop assistants standing around.

Shopping malls, with the backing of larger developers and name brand shops, appear to be doing slightly better, but market watchers say recovery is likely to be slow this year, with rents remaining flat as supply outstrips demand. 

Rents in core shopping districts such as Causeway Bay and Tsim Sha Tsui have undergone a price correction, lowered from previous amounts that were “quite unreasonable”, said Ms Lucia Leung, property services firm Knight Frank’s associate director for research and consultancy in Greater China.

At its peak, monthly rents in Causeway Bay and Tsim Sha Tsui went up to HK$2,000 (S$343) per sq m, according to data from Cushman & Wakefield, but such figures have more than halved since the pandemic.

“While we are cautiously optimistic that the market could pick up within the year, much of this is still dependent on whether tourists, especially those from mainland China, are going to return in full force, or whether they have found alternative avenues for shopping such as e-commerce,” said Ms Leung.

Professor Eric Fong, head of sociology at the University of Hong Kong, said that the double whammy of an exodus and a lack of incoming talent has also led to a shift in demographics, which cannot be expected to reverse immediately. 

This has translated into an employee job market, especially for mid-level professionals. 

“Everything will probably need some time to pick up again, whether it is visitors from the mainland or people coming here to attend conferences and business meetings,” he said. 

It is likely to become clear by autumn whether a much-lauded recovery – be it people returning to live and work in the city, or tourists – will actually come to be, Prof Fong added.

He cited factors such as geopolitical tensions that have also pushed firms to diversify from mainland China. 

This has little impact, however, on Hong Kongers who plan to seek opportunities in the mainland because most who do so are already plugged into China’s system, whether socially or professionally.  

During the pandemic, Prof Fong led a government-funded study on the territory’s integration into the Greater Bay Area, a grouping of nine Chinese cities that also includes Guangzhou, Zhuhai and Shenzhen, as well as Hong Kong and Macau. 

But three years of restricted movement has prevented a whole cohort of people from getting to know the mainland, which might have pushed them to look elsewhere for opportunities, he said. 

Mr Joe Han, 41, whose firm specialises in quantum computing and has operations in Beijing, Guangzhou, Zhuhai and Hefei, said: “For many of us who run businesses in the region, freedom of movement (between Hong Kong and mainland China) is the lifeblood that keeps the entire system going.”

Hong Kong, he said, has been important for fund raising, but is also a convenient meeting point for international clients simply because paperwork for foreigners to visit the city is less cumbersome than trying to enter the mainland.

“It’s often underrated, but face-to-face human interaction is so important in accelerating transactions,” he added.  

The territory’s government is keen to show that the city – which it says is now politically stable after the implementation of the national security law – is reopened for business, and more ready than ever to highlight its mainland credentials. 

“Hong Kong is now seamlessly connected to the world again – there is no isolation, no quarantine and no restriction for you to come to Hong Kong,” Hong Kong leader John Lee said at a news conference in Riyadh during his visit in February, adding that the city’s mission dovetails with Beijing’s 14th Five-Year Plan.

He led a business delegation, which included tycoons Peter Lam and Adrian Cheng, to Saudi Arabia and the United Arab Emirates in a bid to attract more investment to the city. 

There have also been other smaller, unofficial delegations to destinations such as Jakarta and Bangkok, said legislator Edward Leung Hei, who has been part of two such trips. 

“There has been a lot of interest from Indonesian firms, mostly mining companies, for secondary listings here because we have expertise unlike any other and, importantly, there is good access to the mainland Chinese market,” he told ST. 

“This is something that other financial hubs in Asia cannot offer.” 

In announcing the city’s budget last Wednesday, Financial Secretary Paul Chan said he expects the economy to grow between 3.5 per cent and 5.5 per cent this year. 

“However, the economic recovery is still in its initial stage, and there is a need for our people and businesses to regain vigour,” he added, in announcing cash handouts and the easing of stamp duties for first-time property buyers. 

The government has also announced several schemes to attract talent, including a special visa allowing high-calibre candidates to live in the city even before securing a job, and a capital investment entrant scheme. 

In February, the Hong Kong government also launched an aggressive promotional campaign, Hello Hong Kong, which includes giving away 500,000 free air tickets to attract tourists. 

There has been an uptick in interest from Chinese small and medium-sized enterprises that are interested in office space, especially around the Central Business District or close to the high-speed rail station in Kowloon West, said Knight Frank’s Ms Leung.

“We are cautiously optimistic that this would translate into better economic performance in the year ahead,” she added.

But for some visitors from the mainland, the opportunity to visit hassle-free – sans paperwork, quarantine or Covid-19 testing – has been a huge draw on its own. 

Guangzhou-based artist Xu Haoran, 26, said he has already gone to the city twice in the past month, visiting friends and music shops. 

His first trip in late January required him to book a high-speed rail ticket because of travel quotas that had been imposed then, but his second visit in mid-February simply involved a 40-minute metro ride.

“Of course the records I want can be found on Chinese e-commerce platforms, but because they are considered ‘sensitive’ or banned, sellers will jack up prices,” he said. 

For instance, a cassette tape by Icelandic singer-songwriter Bjork retails for HK$35 in the city, but can go up to 200 yuan (S$39) on Xianyu, a second-hand platform.

“It is also nice to just walk into a shop and browse, and even talk to the grumpy music shop owners because you never know what you might find.”

Human interaction is also an important part of the shopping experience for Shanghai resident Daisy Su, 36, who was queueing on a Saturday in mid-February to enter a Dior boutique in Tsim Sha Tsui. 

“I have been to the same shops in Shanghai, but the customer experience here is just different, everything feels more polished,” she said. 

“It feels less crowded than when I was last here in 2019, but I am sure people will come back soon. 

“Of course it doesn’t hurt that whatever we buy is tax-free.”