Waves of tourists from Chinese mainland would continue to boost earnings for Hong Kong retailers, but profit increases will not match last year's explosive growth, analysts said.

One year ago, mainland began allowing residents of some cities in Guangdong Province, as well as Beijing and Shanghai, to visit Hong Kong as individuals instead of requiring them to join tour groups, giving Hong Kong's economy a badly needed boost.

The travel scheme has since been extended to 32 cities, with 150 million mainland residents now eligible to visit Hong Kong as solo visitors, and it is expected to be expanded further.

"The underlying dynamic is still there for retailers, but the magnitude is unlikely to be sustained this year given a higher base to compare," said Jeanine Angell, analyst at Merrill Lynch.

Many Hong Kong retailers recorded sharp profit growth last year on the back of the tourist boom and recovering domestic demand, which in turn helped lower the city's unemployment rate and nearly put an end to a six-year deflation spiral.

Visitors account for about 40 percent of retail spending in Hong Kong -- about half of that from mainland Chinese, according to George Leung, chief economist at HSBC.

Cosmetics retailer Sa Sa International Holdings, which is popular with mainland tourists who can save about 30 percent on what they would spend at home, saw its net profit rise more than twofold in the year ended March 2004.

Analysts expect Sa Sa's profits for this year and next will rise by a slower 65 percent and 20 percent, respectively.

Dickson Concepts (International), which operates the upscale Seibu department store in Hong Kong, is expected to post profit increases of 7 percent and 30 percent for this year and next. The company's profit last year almost doubled, helped by spending by mainlanders.

High rates of growth for mainland tourist arrivals into Hong Kong are likely to continue for at least another three to five years and their per-capita shopping spending should keep on rising, which will help retailers' earnings, CLSA said in a research report last month.

Mainland Chinese are already among the biggest spending tourists in the territory. Last year, they shelled out more than HK$6,000 (US$769) each during their visits, versus HK$5,500 for Americans.

Last year, 8.46 million mainland Chinese visited Hong Kong -- about a quarter of them using the new solo traveller scheme. CLSA expects that figure will rise to 12 million this year.

The value of the city's retail sales has been rising since last August, when the travel scheme was implemented.

Citibank estimated total retail sales in Hong Kong will rise by about 8 percent this year to HK$186.9 billion from HK$172.86 billion last year.

The improving retail picture has led to higher rents.

In some prime shopping areas such as bustling Causeway Bay, retail rents have more than doubled over the past year.
 
(Shenzhen Daily July 29, 2004)