| Less than two weeks after Hong Kongers made the most of a four-day weekend by getting out of town, another potentially five-day break looms starting Thursday. While the holidays are a boon for transport firms as well as retailers in the end destination, they’re exacerbating a prolonged contraction in consumption locally. Some 2.2 million Hong Kong residents left the city from Thursday through Sunday over the Easter break, out of a total population of 7.5 million, according to Immigration Department figures. The majority of departures were through checkpoints with Shenzhen. At the same time, just 396,000 mainland Chinese visitors entered Hong Kong. With the Hong Kong dollar hitting the highest level against the yuan since 2007 earlier this month, and deflation persisting in China, it’s little surprise that residents are increasingly choose to spend their money across the border — helped by transport links constructed in recent years. At the same time, the wave of high-spending mainland Chinese tourists that buoyed Hong Kong’s economy for much of the previous decade has failed to return post-Covid, delivering a double blow to the city’s businesses. The result is retail sales have fallen every month on an annualized basis since March 2024, with the most recent data showing a 13% plunge in February. While the comparison that month was distorted by Lunar New Year holidays falling in January, the value of sales was the lowest for any February since 2010, once pandemic years are stripped out. It remains to be seen whether a series of international events held in March helped reverse the downtrend. The upcoming exodus should be ameliorated by a greater influx of mainland Chinese visitors than seen during Easter, given the “golden week” holiday across the border. Financial Secretary Paul Chan predicted in his blog on Sunday that about 840,000 tourists from the mainland will come during the holiday period, a 10% increase from last year. Even then, the business environment is expected to remain tough. “Hong Kong will likely see more inflows of mainland tourists in the Labour Day golden week than last year,” said Gary Ng, senior economist at Natixis. “However, spending increases during the holiday may not offset the pressure on other days.” Together with the property slump, a sluggish economy, still-high borrowing costs, increasing competition from mainland firms, volatile geopolitics, and the US-China trade war, Hong Kong businesses are facing an uphill struggle. Confidence is falling among the city’s small and medium enterprises, which employ almost half of the private sector workforce. A recent survey by CPA Australia found only 57% of respondents expected their business to grow this year, down from a projected 69% in 2024, while a quarter said they may struggle to repay debts. Many are buckling. In the first three months of the year, 178 companies were ordered to be wound up by a court, compared with 443 for the whole of 2024, according to official data. February’s figure was the highest since 2009. Hong Kong’s economic outlook is also reflected in the stock market. While the Hang Seng Index, which is dominated by Chinese firms, has climbed 10% this year, the MSCI Hong Kong Index has trailed with a 1% gain. Last month, the MSCI gauge fell to its lowest level relative to the Hang Seng since 2010. There are few easy fixes to the current situation. The government is seeking to attract big spenders through high-profile events (see calendar below) and measures such as building marinas. In the meantime, the city’s businesses will need to innovate — and endure. “The biggest challenge in Hong Kong’s retail sector is the structural change in residents' and foreign tourists' spending patterns and the lack of competitiveness,” said Natixis’ Ng. “This will require a lengthy transformation of the current shopping-centric model to other activities with long-term investment.” —Richard Frost and Shirley Zhao | 
