Tuesday, January 02, 2007
End of Era of Chinese Tourists in HK?
Starting from Jan 1 2007, custom duties on luxury watches, golf equipment, and cosmetics brought into China by citizens and visitors will be raised by as much as 30% of the value of goods. This is the 1st rate adjustment since the duty was introduced last July, which also covered electronics and clothing (unadjusted for this time).
The government's goal is to boast internal consumption by leveling the after-tax cost of luxury items sold in China vs. bought overseas by Chinese travellers especially in HK. From my Canadian experience this sort of regulations are very hard to enforce because almost everybody will cheat, as long as they see a cheaper price elsewhere. I doubt the last round of regulation in July has deterred the Chinese shoppers, if the past Chirstmas holiday is of any indication. The obvious solution is to lower or do away import taxes on luxury items and let people buy as much as they want, after all personal enjoyment is no longer a sin or label for greed and evil capitalism. I think China is moving toward this direction as it too needs internal consumption to balance out its trade surplus.
I think 2007 will mark the start of the end of era of 'freedom shoppers' in Hong Kong. These shoppers have accomplished their historic mission by giving a lift to us when HK economy was at its post SARS bottom. Now sentiments in HK have turned much better and the economy driver has been passed on to the financial sector. So the golden days of HK retailers are numbered and long live the China ones.
Most China consumption and retail plays are incredibly expensive and hence not very good investments now. As good as a brand like Li Ning and Ports, for example, their share prices (over 40x p/e) have fully, if not more than, reflected their prospects. Any disappointment will likely have a drastic effect on share price. Department stores like Parkson and Golden Eagle are traded even more expensively despite not owning any brand. On the other hand, most HK based retailers are trading at single digit or low teen p/e only. So the logical move is to look for those HK sizable players with a China plan.
Pay special attention to luxury retail as demand is less dependent on price. There's this funny perception that the pricier the good the better the quality. Imagine the profit potential when the land, rental, staff and other operating costs are so much cheaper in China but the selling price is the same as in HK!!
The government's goal is to boast internal consumption by leveling the after-tax cost of luxury items sold in China vs. bought overseas by Chinese travellers especially in HK. From my Canadian experience this sort of regulations are very hard to enforce because almost everybody will cheat, as long as they see a cheaper price elsewhere. I doubt the last round of regulation in July has deterred the Chinese shoppers, if the past Chirstmas holiday is of any indication. The obvious solution is to lower or do away import taxes on luxury items and let people buy as much as they want, after all personal enjoyment is no longer a sin or label for greed and evil capitalism. I think China is moving toward this direction as it too needs internal consumption to balance out its trade surplus.
I think 2007 will mark the start of the end of era of 'freedom shoppers' in Hong Kong. These shoppers have accomplished their historic mission by giving a lift to us when HK economy was at its post SARS bottom. Now sentiments in HK have turned much better and the economy driver has been passed on to the financial sector. So the golden days of HK retailers are numbered and long live the China ones.
Most China consumption and retail plays are incredibly expensive and hence not very good investments now. As good as a brand like Li Ning and Ports, for example, their share prices (over 40x p/e) have fully, if not more than, reflected their prospects. Any disappointment will likely have a drastic effect on share price. Department stores like Parkson and Golden Eagle are traded even more expensively despite not owning any brand. On the other hand, most HK based retailers are trading at single digit or low teen p/e only. So the logical move is to look for those HK sizable players with a China plan.
Pay special attention to luxury retail as demand is less dependent on price. There's this funny perception that the pricier the good the better the quality. Imagine the profit potential when the land, rental, staff and other operating costs are so much cheaper in China but the selling price is the same as in HK!!
Subscribe to Posts [Atom]