Tax cut and weakening yuan could affect the way Chinese tourists spend their money in the city, say analysts
China’s decision to cut import tariffs and the rapid depreciation of the yuan pose a serious threat to Hong Kong’s status as a shoppers’ paradise for tourists from the mainland, say analysts.
Visitors from the mainland account for a third of the total visitors to the city, and have been instrumental to the recovery of its retail sector since last year. The tax cut could affect the way Chinese tourists spend their money in Hong Kong.
French luxury goods company LVMH Moet Hennessy Louis Vuitton (LVMH) this week became one of the first companies to cut prices in China following the government’s decision to reduce import duties from July 1 on nearly 1,500 consumer products ranging from cosmetics to home appliances.
LVMH has lowered prices ranging between 3 to 5 per cent, according to mainland media Beijing Business Today .
According to prices on its China and Hong Kong websites, its popular Néonoé Monogram Canvas handbag is now available for 11,800 yuan (US$1,779) from 12,300 yuan previously. The same bag costs HK$13,200 or 11,163 yuan (US$1,683) – a difference of US$96.
The difference in prices between the two places has narrowed because of China’s tariff cut and the yuan rapidly losing value.
While the adjustment of prices may seem small, it could be a trigger for other global brands to follow suit and lower their prices in China, which could pose a threat to Hong Kong, said Hong Xueyu, an analyst with Guotai Junan Securities.
“Especially with the fast pace of yuan’s depreciation, the edge Hong Kong has in luring mainland consumers has become even smaller,” Hong said.
The yuan has weakened in recent weeks and had dropped to an 11-month low of 6.7332 against the US dollar on Tuesday. Traders warn the sentiment remains bearish amid escalating trade tensions between the US and China and waning Chinese growth momentum.
Shen Meng, an executive director with investment bank Chanson & Co, said because of China’s tariff cuts and tax refunds in some European countries, Hong Kong faces fierce competition from these two places where the prices of goods have evened out or have become cheaper.
He, however, added that the depreciation of the yuan will not have a drastic impact on people who buy luxury items, at least not in the short term. “This group can better absorb the shock caused by the fluctuation in the Chinese currency.”
China announced the tariff cuts at the end of May but it only came into effect on July 1. The average tariff rate on 1,449 products imported from most favoured nations has been reduced by more than half to 6.9 per cent from 15.7 per cent.
China is transitioning to a consumption-driven economy away from export-led growth in the face of a slowing economy in recent years. The easing of import tariffs is part of Beijing’s plans to achieve this goal.
