Hong Kong, previously a magnet for shoppers from mainland China, is losing local consumer spending to nearby Shenzhen, as high prices and the territory’s strong currency erode its edge.
A subway ride from Admiralty Station in central Hong Kong to the Luohu border crossing in Shenzhen on a recent Sunday morning took about 50 minutes and HKD 50 (USD 6.40). The train was filled with families and couples, with some passengers carrying bags or small suitcases.
“Shenzhen has a lot of store options,” said a man in his 40s riding the train with his daughter. The mainland city features an array of foreign brands such as Lululemon and Uniqlo as well as local Chinese brands, along with inexpensive street food like noodles, hot pot and skewers.
In 2023, when Covid-19-related restrictions were lifted, Hong Kongers entered mainland China via Shenzhen by land about 53 million times—equivalent to seven times per resident of the territory. Their main destination was Shenzhen itself, which is easily accessible by subway, high-speed train, and car.
Consumer spending in Shenzhen grew 8% last year to RMB 1.05 trillion (USD 145 billion), according to the local government, with shopping up 7% and food spending rising 15%. The overall growth continued last quarter, with a 4% year-on-year rise.
Cheap food and services on the mainland are a big part of the appeal.
Three women in their 40s at a Sam’s Club members-only supermarket in Shenzhen said they take a day trip to the city once every month or two and spend about RMB 2,000 each, with food making up about two-thirds of the cost. Counting transportation, the cost works out to about the same as in Hong Kong, they said.
Shenzhen’s public and private sectors are coming together to tap this demand. A bus operator affiliated with the city government runs free routes linking the border crossing with shopping centers and tourist hotspots.
The Wongtee Plaza mall offers discounts to shoppers who use the Hong Kong version of its electronic payment service. Another shopping center increases staffing at stores on Hong Kong holidays and provides free parking for cars with Hong Kong license plates.
Meanwhile, the outflow of consumer money is vexing Hong Kong.
Retail sales in the territory slid 1.3% on the year last quarter, sitting below even where they were under pandemic restrictions. The nearly four-decade-old Dah Chong Hong Food Mart grocery chain closed all of its 28 locations in April after losing customers to big membership-only supermarkets in Shenzhen and elsewhere.
A group compiling information on local restaurants and shops that have gone out of business has caught attention on Facebook. Many commenters lament the closure of favorite stores, or the loss of Hong Kong’s edge over the mainland.
“The store closures aren’t stopping,” said Raiky Wong, director of retail at real estate brokerage Centaline Commercial. Wong expects transaction prices for commercial tenants to fall by up to 5% this quarter compared with the January-March period.
Aiding this shift toward the mainland is the appreciation of the Hong Kong dollar, which is pegged to the strong US dollar. As of May 1, the Hong Kong currency had strengthened 5% against the yuan compared with a year earlier, and around 10% from two or three years ago.
Many Hong Kong restaurants add 10% service charges to bills for customers dining in.
On the other hand, the quality of food and services in Shenzhen and other big mainland cities has improved, said a 47-year-old Hong Kong resident who visits the mainland with friends almost every week. “Everything feels more expensive when I come back to Hong Kong,” she said.
“Hong Kong is in a difficult transition period, and the slump in spending from factors such as ‘northbound consumption’ will probably continue,” said Annie Yau-tse, chair of the Hong Kong Retail Management Association.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.