Tourism in Hong Kong struggles with high prices and competition from Shenzhen

In an effort to win back tourists, Hong Kong is asking its service staff to be more polite and smile. But higher prices and competition from up-and-coming Shenzhen are the larger problems, experts say.

The glitzy financial hub has long been known for its luxury shopping, dining and nightlife, but visitor numbers have yet to recuperate to levels following years of disruption attributable to social unrest and the Covid-19 pandemic.

In response, the Hong Kong government launched a campaign called “Let’s go the extra mile“ – Encouraging frontline staff and the public to show good hospitality and “Strengthening Hong Kong’s brand as the best tourism destination.”

At a press conference last week he said: Chief Executive John Lee urged residents to be more polite, smile more and “make a special effort to promote Hong Kong hospitality.”

The initiative comes after data showed A total of 24 million visitors in the first four months of the year was still only 60% of the level of the same period in 2019.

Although these numbers represent a significant increase from last year, experts warn that there are bigger obstacles to a full recovery than Hong Kong's grumpy residents.

“One of the town's biggest problems is kind of simply that we’re expensive,” says Allan Zeman, chairman of the Lan Kwai Fong Group, the largest property owner and developer in Hong Kong's famous Lan Kwai Fong nightlife district.

Hong Kong's currency is pegged to the US dollar, which benefits the city's status as an international financial center, but it can also make for an expensive place to live compared to many other Asian economies, especially given the high interest rates and strong US dollar.

“Tourists are finding that other places like Shenzhen and Japan are very, very cheap in comparison,” said Zeman, who also serves as an adviser to the Hong Kong government.

This dynamic is especially true for travelers from mainland China. Chinese Yuan loses significant value against the US dollar and the Hong Kong dollar in recent months.

At the same time, Zeman said mainland Chinese make up a larger share of tourists in the city as other nationalities have been slower to return. He said this poses a problem for local businesses as mainland Chinese tend to spend less due to travel preferences, shorter stays and tighter budgets amid economic problems at home.

While the Hong Kong Culture, Sports and Tourism Department expects an increase in tourist numbers this year, the department estimates that per capita spending by overnight visitors will fall to HK$5,800 ($742.64) from HK$6,939 last year. according to the 2024 budget.

LKF, a popular tourist destination, was hit particularly hard when Hong Kong's borders were closed during the pandemic.

Although many businesses in the area have recovered well, according to Zeman, there are currently still some unused spaces – which was a rarity before the pandemic.

Conversely, locals are making more and more trips to the neighboring mainland city of Shenzhen, says economist Simon Lee Siu-Po, honorary member of the Asia-Pacific Institute of Business at the Chinese University of Hong Kong.

“Both have become equally important problems for Hong Kong,” he said.

While the city's borders were closed during the pandemic, nearby Shenzhen continued to develop into a top-tier Chinese city, Lee said. And newly built high-speed trains and a massive sea bridge have made that journey more convenient than ever.

Shenzhen offers a wide range of dining, entertainment and shopping options that can now compete with Hong Kong, Lee said, adding that prices for goods and services in the city are sometimes up to two or three times cheaper.

This dynamic explains why thousands of Hong Kong residents flocked to the Shenzhen border for the Easter holidays at the end of March., Leaving the financial center Restaurants, bars and shopping centers emptyin response to local media.

During the complete month of March, the town with 7.3 million inhabitants experienced 9.3 million residents leave from its passenger traffic control points. Government data shows This was the highest monthly number of departures since at least 1997, when the city was transferred from British rule to Chinese sovereignty.

Meanwhile only approx. 3.4 million visitors got here to the town in the identical month.

These trends have taken their toll on Hong Kong businesses. Retail sales proceed to fall as local media reports about rapid closure of restaurants.

According to a recent survey conducted by the Hong Kong Small and Medium Enterprises Association, 70% of small and medium-sized enterprises in the city reported a decline in business performance compared to pre-pandemic levels.

In addition to campaigns such as “Let's Go The Extra Mile”, the Hong Kong authorities have also HK$1.09 billion put aside for city-wide events akin to fireworks to spice up tourism and spending.

While the funds will help, fighting high prices and competition from Shenzhen would require way more drastic efforts, said Lee and Zeman of LKF.