A Drop in Tourism Is Threatening Hong Kong's Economy

Tianlei Huang (PIIE)



Racked by antigovernment protests since June 2019, Hong Kong is on the brink of recession. Its economy contracted by 0.4 percent in real terms in the second quarter of 2019 over the preceding quarter. If this trend has continued in the third quarter, Hong Kong might have already fallen into a technical recession,[1] as the territory’s financial secretary has warned. A leading cause of its economic troubles is the well-publicized plunge in the tourism industry.

Total visitor arrivals in July 2019 dropped by 4.8 percent over July 2018. Visitors from mainland China decreased by 5.5 percent. Since June, 31 countries have issued travel advisories or alerts on Hong Kong, while a weaker renminbi has made Hong Kong more expensive for mainland tourists. Tourism is one of Hong Kong’s traditional four key industries.[2] Nearly 60 million visitors traveled there in 2017, generating HK$92.2 billion (US$11.76 billion)[3] of value added, equivalent to 3.6 percent of Hong Kong’s GDP in 2017.[4] In 2018, the city’s 65 million visitors were nearly nine times its population of 7.5 million, a higher ratio than New York City’s.[5]

Nearly 80 percent of all visitors in the past five years came from mainland China. That trend continued in 2019, with nearly 32 million mainlanders visiting Hong Kong from January through July, almost four times the number from the rest of the world (see figure 1a). Mainland visitors also spent more per capita in Hong Kong than visitors from elsewhere (figure 1b). In 2018, each overnight visitor from mainland China spent HK$7,029 (US$896) in Hong Kong, a quarter more than that spent by a visitor from elsewhere, while each same-day visitor from the mainland spent HK$2,410 (US$307), three times the amount spent by a nonmainland visitor.

Figure 1 Most visitors to China are from mainland China. They also spend more per capita than other visitors.

But while total spending by all visitors in Hong Kong was HK$242.4 billion (US$30.86 billion) in 2017, the direct value added was only HK$92.2 billion (US$11.76 billion), less than 40 percent of the total spending.[6] How much value added visitors can generate depends on how they spend their money in Hong Kong—for example, if they spent more on goods manufactured elsewhere, the value added for Hong Kong is less. For every dollar spent on retail trade in Hong Kong in 2017, only 18 cents of value added was counted toward the territory’s GDP. By contrast, for every dollar spent on accommodation, 62 cents of value added was counted, 40 cents for food and beverages, and 46 cents for entertainment, sightseeing, and the like.[7]

Thus, paradoxically, while mainland visitors spent more than nonmainland visitors, their per capita value-added contribution was lower than that of an average nonmainland visitor. This demonstrates that mainland visitors mainly shopped during their visits, whereas visitors from the rest of the world spent more on other products and services, such as accommodation, transportation, and food and beverages. However, the aggregate direct value-added contribution by mainland visitors to Hong Kong’s GDP was still significant because of their sheer size (figure 2). More than 44 million mainland visitors in 2017 added HK$56.8 billion (US$7.24 billion) to Hong Kong’s economy, 2.2 percent of the city’s 2017 GDP.[8]

Figure 2 Mainland China visitors generated 2.2 percent of Hong Kong’s GDP in 2017

Assuming nothing else has changed since 2017, if mainland visitor arrivals drop by 50 percent between August and December 2019, half a percentage point of Hong Kong’s GDP would be at stake. If, on top of that, visitor arrivals from the rest of the world also decrease by 50 percent during the same period, another 0.3 percentage point of Hong Kong’s GDP would be at risk. So 0.8 percentage point of Hong Kong’s GDP would be on the verge of vanishing if visitor arrivals drop by 50 percent by the end of 2019. This calculation does not include indirect effects of a drop in tourism on, for example, capital investment and government spending, which some estimate to be larger than the direct effects.[9] Figure 3 shows how much of Hong Kong’s GDP is directly at stake if visitor arrivals between August and December 2019 drop by 10, 30, 50, or even 80 percent.

Figure 3 A drastic drop in visitors could significantly damage Hong Kong's economy

On August 15, 2019, the Hong Kong government announced a HK$19.1 billion (US$2.44 billion) relief package of tax and fee reductions, rental reductions, subsidies, and other measures to boost the economy, but these steps will help only in the short run. It is more important for Hong Kong to regain its stability and reputation as a safe and hospitable tourist destination, a hard task in light of the confrontation with Beijing over its autonomy.


1. A technical recession is widely defined as two consecutive quarters of decline in real GDP.

2. The other three are financial services, trading and logistics, and professional and producer services.

3. The Hong Kong dollar is pegged to the US dollar in a narrow band of 7.75 to 7.85 per US dollar. The exchange rate used to convert Hong Kong dollars to US dollars in this post is as of September 10, 2019.

4. Hong Kong citizens traveling outside the city also contribute to the city’s economy through local travel agencies, reservation services, and cross-border transportation services. In 2017, outbound tourism created a value added of HK$22.1 billion (US$2.82 billion), 0.9 percent of GDP, for the Hong Kong economy, according to the Census and Statistics Department of the Hong Kong Special Administrative Region (HKSAR), www.censtatd.gov.hk (accessed on August 27, 2019). Note that the value added reported by the Census and Statistics Department does not take into account the indirect economic impact of tourism on the economy.

5. Data on total visitor arrivals are from the Hong Kong Tourism Board, www.discoverhongkong.com (accessed on August 27, 2019) and data on Hong Kong’s population are from the Census and Statistics Department of the HKSAR. In 2018, New York City (NYC) received about 65.2 million visitors and the city’s population as of July 1, 2018, was 8.4 million. The ratio of total NYC visitor arrivals to the local population was 7.8. Data on NYC visitor arrivals are from NYC & Company, business.nycgo.com (accessed on August 27, 2019) and data on population are from the US Census Bureau, www.census.gov (accessed on August 27, 2019).

6. There is a time lag in the HKSAR’s release of disaggregated value-added data by sectors. The latest data available are as of the end of 2017.

7. I calculated the rate of direct value added in 2017 for retail trade, accommodation, food and beverages, and other subsectors including entertainment and local sightseeing tours, following the method derived from in Yun-Wing Sung, Alex C. Y. Ng, Yuhao Wu, and Alex W. H. Yiu, The Economic Benefits of Mainland Tourists for Hong Kong: The Individual Visit Scheme (IVS) and Multiple Entry Individual Visit Endorsements (M-Permit), Occasional Paper 34, Shanghai-Hong Kong Development Institute, Fudan University and Chinese University of Hong Kong, September 2015, available at www.cuhk.edu.hk (accessed on August 26, 2019). Data and calculations are available here.

8. Data and calculations are available here.

9. See World Travel and Tourism Council’s research on the economic impact of the tourism industry.

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