The Siren Song of Shenzhen
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The lure of cheap goods and services in mainland China could spell trouble for Hong Kong
By MATT POTTINGER
SHENZHEN, China -- A few times each month, Chow Foon Har joins the countless other Hong Kong shoppers who throng the stalls and shops of what she calls "Hong Kong's biggest mall."
In fact, "the mall" is Ms. Chow's coy term for the neighboring Chinese city of Shenzhen, whose cheap stores, restaurants and nightclubs have made it a weekend Mecca for Hong Kong consumers.
"Hong Kong is expensive and claustrophobic. We come up here to treat ourselves," Ms. Chow, a 50-year-old stockbroker, says during a recent Saturday excursion to Shenzhen. As a tailor measured her friend for a custom-made suit, Ms. Chow rattled off the day's itinerary: two restaurants, a department store, a silk shop, and -- as the main event (a three-hour session of foot and body massages that will cost her the equivalent of $11, or one-tenth what she would have to pay in Hong Kong.
"It simply isn't worth paying for such things in Hong Kong anymore," she says.
That fact poses a nettlesome problem for Hong Kong's economy as it struggles to halt a four-year deflationary spiral that is denting profits and fueling record unemployment. Last year, Hong Kong residents spent $2.5 billion on personal goods and services in Guangdong province, where Shenzhen is located, according to official Hong Kong statistics. That is equivalent to 3% of the $85.3 billion Hong Kong consumers spent in their home city. While not an insignificant figure by itself, economists say the true cost to Hong Kong's retail sector is actually larger, since each dollar spent in Shenzhen may preempt the expenditure of several dollars on similar, but more expensive, goods in Hong Kong.
The plight of Hong Kong's retail sector highlights an unhappy wrinkle in the trend of rising consumerism in Asia: Even when consumers are spending freely, the domestic economy may miss out on a good chunk of the dough.
Hong Kong isn't alone. Mainland China's cheap labor, land and production costs have made it an export juggernaut that is spreading deflation throughout the region and beyond. But for many economies the impact is mitigated by their own sizeable exports to China, such as raw materials from Southeast Asia, or semiconductors and other high-tech components from Korea and Taiwan. Distance from China also helps: Japanese shoppers may be scooping up Chinese goods, but at least they are buying them in Japanese department stores.
Hong Kong enjoys no such buffer. Here, the "giant sucking sound" is real, audible in the whoosh of passing Kowloon-Canton Railway trains that deliver Hong Kong people to the Shenzhen border 200 times each day. Many of the passengers clutch empty backpacks and canvas bags to be filled with cheap stuff.
Immediately across the border, Shenzhen's Lowu Commercial City, a drab multistory honeycomb of vendors' stalls, teems with Hong Kong shoppers patrolling for fake designer handbags, women's shoes, strings of pearls, bags of tea, manicures, and even ballroom dance classes-much of it available for less than one-tenth of Hong Kong prices.
"It reminds me of what Buffalo [New York] is to people from Toronto, but on a hyper scale," said Henry Leung, a fashion-industry executive in Hong Kong who recalls driving with college pals across the Canadian border to buy cheap cigarettes in the U.S.
Less wholesome aspects of Hong Kong people's pilgrimage more closely resembles college road trips to seedy Tijuana, Mexico. Shenzhen is packed with nightclubs, several of whose clientele are almost exclusively young Hong Kong men indulging in copious supplies of booze, drugs and women.
On a Saturday night, a group of Hong Kong construction workers in their early 20s crowd around a table at Bingo Disco Club, paying $24 each for coolers of beer and the right to select from a parade of women to keep them company. Some of the men negotiate to take women back to their hotel rooms. One of the men, his friends call him Ah-Sing, says he can spend a full night partying in Shenzhen, including an escort and snorts of an illicit drug called Ketamine, for under $70.
Just how large a role Shenzhen consumption plays in depressing Hong Kong consumer prices, which have fallen for 47 straight months at rate of 2.5% per year, is difficult to gauge. There are indications other problems have had at least as big of an impact.
In the mid-1990s, for example, Beijing tightened controls on lending by state financial institutions, drying up a key source of liquidity in the Hong Kong property and stock markets, says Jonathan Anderson, an economist with Goldman Sachs. Then, the 1997-98 Asian financial crisis closed the spigot from Japanese banks and spooked foreign and local investors. Hong Kong "headed into the mid-90s with three pistons firing, and came out with no pistons firing," Mr. Anderson says.
Yet for many retailers in Hong Kong, the Shenzhen effect is all too clear. In Sheung Shui, a Hong Kong neighborhood just a few kilometers south of Shenzhen, many shops have simply given up selling items available across the border. Shoe store salesman Sham Kwok says he stopped selling women's dress shoes because he couldn't drop his prices any further. Whereas there were a dozen tailor shops five years ago, today there are only two, says Cheung Wan Sun, manager of the surviving Kwun Kee Tailor. The others "couldn't compete with Shenzhen's rents," he says.
The Hung Fook Seafood Restaurant has slashed dim sum prices by 50% since 1998 to "try to retain customers who go to the mainland on holidays," says executive director Redford Yuen. The only visible nightlife one recent weekend was a distant cry from Shenzhen's humming neon lights: a group of elderly men playing Chinese chess under a street lamp.
--Mr. Pottinger is a staff reporter in The Wall Street Journal's Hong Kong Bureau.
Write to Matt Pottinger at matt.pottinger@wsj.com
Updated October 28, 2002 |
