China Slowdown Ripples Through Hong Kong as Sales Weaken

China’s slowdown is rippling through Hong Kong, with the city’s retail sales rising at the slowest pace since 2009 as mainland visitors cut spending.

Sales rose 11.4 percent in April from a year earlier, the government said yesterday. That’s the smallest gain since October 2009, excluding January and February numbers distorted by the Lunar New Year holiday. The median estimate in a Bloomberg poll of economists was for a 16.4 percent increase.

The smaller-than-estimated gain came the same day as jewelry retailer Graff Diamonds Corp. shelved a $1 billion initial public offering in Hong Kong, blaming “consistently declining stock markets.” Graff’s rivals are feeling the effects, too. Chow Tai Fook Jewellery Co. billionaire Cheng Yu Tung’s net worth dropped about 26 percent this year to $15 billion, according to the Bloomberg Billionaires Index.

“Less extravagant spending by mainland shoppers is part of the issue,” said Donna Kwok, a Hong Kong-based economist at HSBC Holdings Plc. (HSBA) “Local households are also being more prudent because of increasing turbulence in financial markets.”

China’s economy is cooling as Premier Wen Jiabao extends a crackdown on speculation in the housing market and Europe’s sovereign-debt crisis and austerity measures constrain exports. In Hong Kong, a 15 percent decline in the Hang Seng Index (HSI) since February has damped confidence and demand as households see the value of their assets dwindle. The benchmark is down 21 percent in the past 12 months.

Luxury Goods

Graff marketed its IPO amid a slowdown in luxury-goods spending in Hong Kong, where Chinese tourists splurge to take advantage of lower tax rates than in the mainland.

Sales of jewelry, watches and valuable gifts in Hong Kong rose an average of 17 percent in the first three months compared with a year earlier, according to data compiled by Bloomberg. That’s down from growth of about 37 percent in the last quarter of 2011, the data show.

At Hong Kong-listed jewelry maker and retailer Chow Sang Sang Holdings International Ltd. (116), Chief Financial Officer Theodore Tam said that Chinese tourists have reined in spending on products selling for HK$100,000 ($12,900) or more.

It’s “difficult to predict” what their spending will be like in coming months, he said. “There are a lot of things that impact the overall sentiment, in particular what the Chinese government will do in terms of policy incentives that may give a boost to the economy.”

Limiting Slowdown

Hong Kong’s lower taxes may help to limit the scale of the slowdown in retail sales growth. Shopping in the Central district today, Wang Wei, 26, of Kaifeng in the Chinese province of Henan, said prices were cheaper than on the mainland and she planned to buy cosmetics and watches after already purchasing jewelry during her five-day visit.

In China, a Purchasing Managers’ Index fell to 50.4 in May from 53.3 in April, the nation’s statistics bureau and logistics federation said. That was the weakest reading since December and compared with the 52 median forecast in a Bloomberg News survey of 27 economists. A reading above 50 indicates expansion.

A separate PMI released by HSBC Holdings Plc and Markit Economics also declined.

The Chinese economy “is probably cooling faster than originally expected,” Chang Jian, a Hong Kong-based economist at Barclays Capital who formerly worked for the World Bank, said before the release. “The only effective way to stabilize growth quickly is through investment.”

To contact the reporter on this story: Paul Panckhurst in Beijing at ppanckhurst@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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