April 12 (Bloomberg) -- Ju Wei, the owner of an advertising company in China’s north-western Gansu province, makes an 1,800 kilometer (1,100 miles) trek to Hong Kong at least six times a year to go shopping.
“Hong Kong is an international city, and that shopping atmosphere and environment is fantastic,” said Ju, 29, who carries a shopping list from her friends in Lanzhou. “The stuff in Hong Kong has higher quality. It’s so cheap.”
Mainland residents, their wealth bolstered by an economy that grew at the fastest pace since 2007 in the fourth quarter, are visiting Hong Kong in record numbers and spending on luxury. February retail sales rose 36 percent from a year earlier, the fastest pace since 1988, the government said. They are also paying record prices for apartments, prompting the government to warn of a property bubble.
“The Hong Kong retail market would absolutely be devastated if Chinese consumers stop visiting,” said Kevin Lai, economist at Daiwa Capital Markets Hong Kong Ltd. “Half of the crowds in those shopping areas would disappear.”
China’s economy, the world’s third-biggest, expanded by almost 11 percent in the fourth quarter of last year after a 4 trillion-yuan stimulus program and $1.3 trillion in new bank lending at record-low interest rates. The number of mainlanders worth at least 10 million yuan ($1.47 million) rose 6.1 percent this year to 875,000, according to the Hurun Wealth Report.
The wealthy are finding their way to Hong Kong, a special administrative region of China with different financial and legal systems. Tourist arrivals from the mainland gained 49 percent in February from a year earlier, driving total visitor arrivals to a record 2.87 million for the month, the Hong Kong Tourism Board said.
Sales at department stores that month surged 49 percent from a year earlier, and sales of luxury goods such as jewelry and watches jumped 48 percent. China imposes taxes of at least 30 percent on cosmetics, 20 percent on high-end watches and 10 percent on golf equipment, according to the State Administration of Taxation. Those items aren’t taxed in Hong Kong.
Ju visited during Lunar New Year in February and bought a HK$6,500 Gucci handbag and Dior mascara. She spends as much as HK$50,000 each trip on handbags and clothes by LVMH Moet Hennessy Louis Vuitton SA, Gucci Group NV and Burberry Group Plc, she said. She also buys diamonds, cameras and cosmetics.
The amount Ju said she spends each trip is more than double China’s average urban per capita net income of 17,175 yuan ($2,516), based on National Bureau of Statistics figures.
Mainland money has also helped fuel a 45 percent jump in prices of Hong Kong luxury homes last year, real estate broker Savills Plc said. About 19 percent of the people buying luxury properties, or homes worth more than HK$10 million, were mainlanders, according to Centaline Property Agency Ltd.
That helped the city’s economy grow by 2.6 percent in the fourth quarter from a year earlier -- the first gain in five quarters.
Henderson Land Development Co. sold an apartment for a world-record price of HK$88,000 per square foot.
The surging prices prompted Financial Secretary John Tsang to warn of a bubble. Hong Kong’s central bank subsequently raised the minimum down-payment required for homes worth more than HK$20 million, and the government said it would raise stamp duties on luxury residences and release more land for development.
Local house hunters Jennifer To and fiance Henry Chan say the unprecedented prices are spilling into the mass market and putting starter homes out of their reach.
To, a law student, and Chan, a hedge-fund analyst, said they shopped for apartments last year and found prices of HK$6,000-HK$7,000 per square foot.
When they returned this year, prices were HK$10,000.
“Property prices in Hong Kong are being pushed up by mainland Chinese,” said To, 29. “You’ve got all these rich people buying up everything and normal people can only afford to rent.”
Stores also are feeling the effects as rents rise in malls popular with mainlanders. IFC Mall, connected to the Four Seasons Hotel, said monthly rents rose 25 percent last year to between HK$250 and HK$620 per square foot. Increases of between 10 and 25 percent are anticipated this year, Karim Azar, assistant general manager of IFC Management, said in January.
“The mainland’s hot money today is blowing a property bubble in Hong Kong that is similar to the one seen around 1997, only with a much bigger lung,” said Tao Dong, Hong Kong-based chief regional economist at Credit Suisse Group AG.
Spending by mainlanders typically makes up about 30 percent of sales for stores in the Central district, said David Martin, head of retail at Hongkong Land Holdings Ltd., which owns the Landmark and nearby malls with luxury stores.
Visitors from mainland China who stay overnight or longer spend more than 70 percent of their budget on shopping, said government economist Helen Chan.
Mainlanders are more confident that Hong Kong stores aren’t selling forgeries, said Paul Law, financial controller of Luk Fook Holdings International Ltd., with more than 500 jewelry stores in Asia and North America.
Hong Kong is the biggest market for Swiss watchmakers, who exported 225.1 million Swiss francs ($210.3 million) worth of timepieces to the city in February, 17 percent more than a year earlier.
“The ‘three flows from China,’ which are goods, visitors and capital flows, are driving the local economy tremendously,” said Daiwa’s Lai. “Mainland China has so much cash that it can easily push the city’s economy up.”
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