Hong Kong Exodus

"During the Tuen Ng (Dragon Boat) holiday weekend, a staggering one-eighth of the population — 1.3 million people — made the journey north on Friday and returned by Monday."

On Sunday morning, I was unhurriedly strolling along through the Sharp Street market, enjoying the lack of crowds, when Mrs Tai, who sells me fruit from her family outlet, greeted me with unexpected enthusiasm. "Happy to see you," she gestured me over. "Business is so slow; everybody has gone north," she lamented.

There's a massive exodus from Hong Kong, and I'm not referring to the typical migration that's been ongoing for decades. The new trend is that people flock across the border to the Mainland at every opportunity.

To put it into perspective, during the Tuen Ng (Dragon Boat) holiday weekend, a staggering one-sixth of the population — 1.3 million people — made the journey north on Friday and returned by Monday. That is more than the population of Birmingham, the U.K's second largest city. 

In the past, such large numbers typically crossed the boundary only at Chinese New Year or other significant festivals. Now it's almost a weekly occurrence. 

The logistics of that many people moving are staggering. The main attractions are improved transport links, such as the high-speed rail that offers fast connections to a broader hinterland, and efficient boundary controls, which have made crossing the border a much smoother process. These factors, along with savings on shopping and dining, have contributed to the migration trend. 

On Saturday evening, I had dinner with friends in Tuen Mun. One couple left at 9 p.m. to drive to their new flat near Zhuhai, just north of Macau.  They arrived home within 50 minutes. This trip alone shows that Hong Kong is now physically fused with the enormous economic conurbation of the Great Bay Area, a region encompassing Hong Kong, Macau, and nine cities in Guangdong Province.

Hence, against the backdrop of a strong Hong Kong dollar — which is pegged to the United States Dollar — Hong Kong residents have prioritised weekend trips to Shenzhen over local spending. Pent-up demand to travel from the Covid period is also a factor. 

Not everyone is benefiting from this trend. Hong Kong retailers and restaurant owners are feeling the impact as their once-loyal customers now seek better deals on the Mainland. The effect is palpable, with the Hong Kong catering sector reporting a significant 30 per cent drop in business over the Tuen Ng festival weekend. This is a clear indication of the challenges they are facing. 

In the long run, the powerful Hong Kong landlords will suffer. Many have kept retail property prices high, which are passed on in business costs to consumers, making Hong Kong expensive. Thus, as Hong Kong merges economically with the GBA, a welcome price adjustment is coming—welcomed by consumers but not the vested interests who have monopolised the market for so long. 

Hong Kong is often presented as a model of free market economics, but the reality is more nuanced. Despite relatively low taxes, minimal government intervention, and few trade barriers, it doesn't qualify as a completely free market.

This position is because the Hong Kong government significantly influences the economy, especially in controlling land sales. As the largest landowner in the city, the government uses this control to shape development.

Therefore, while Hong Kong may be more market-oriented than many other economies, it doesn't meet the criteria to be considered a completely unregulated, laissez-faire paradise. Instead, it is best described as a managed market economy.

Alongside that is the influence and impact of property tycoons. While no single tycoon has interests across all industries combined, they control most of Hong Kong's companies, including those involved in property, power generation, food supplies, airlines, and transport.

Over time, excessive profit-seeking and the absence of an open market damaged the tycoons' public image. Once revered as an example to follow, public sentiment is less enthusiastic these days.

When the French hypermarket chain Carrefour attempted to enter the Hong Kong market, the media reported that they could not find sufficient suitable locations. As a result, the supermarket duopoly, which consisted of ParknShop and Wellcome, faced no new competition, leaving consumers with limited choices.

​Commentators noted that the owners of supermarket duopoly also controlled substantial tracts of property. A suspicious man may think this was more than a coincidence. 

There are plenty of Carrefours, Wal-Marts, and Tescos in Shenzhen and other hypermarkets. Thus, Hong Kong consumers are exercising their option to buy in bulk in a place with more reasonably priced choices. This shift in consumer behaviour could increase market competition, offering consumers diverse options.

Yet, how odd that Mainland China appears more open to competition than Hong Kong. 

As this trend continues, its impact on Hong Kong's economy is inevitable. However, Hong Kong's unique structural advantages, such as our location, free capital flows, low and simple taxes, abundant liquidity, and internationally aligned compliance and legal frameworks, may serve as a shield against the economic challenges. The question that lingers is: Will these advantages prove to be sufficient? 

Only time will tell.