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China Slowdown Cuts Luxury Spending, Hong Kong Retailing

China’s slowdown dragged Hong Kong’s retail-sales growth to the weakest pace since 2009 as shoppers visiting from the mainland cut back on purchases of luxury goods such as jewelry and watches.

Sales increased 8.8 percent in May from a year earlier to HK$36 billion ($4.6 billion), the government said yesterday. That was the smallest gain since September 2009, excluding seasonal distortions each January and February.

The deceleration of Asia’s biggest economy is rippling through Hong Kong, which had record retail-sales gains as recently as last year. In neighboring Macau, a center for Chinese gamblers, a report this week showed that casino revenue was below estimates in June, clouding the outlook for companies including Sands China Ltd.

“The consumption appetite of mainland visitors has dropped compared with last year because of the economic slowdown,” said Raymond Yeung, a Hong Kong-based economist at Australia and New Zealand Banking Group Ltd. The data are a “warning sign for Hong Kong retailers.”

The increase in retail sales compared with an 11.4 percent gain in April and the median 9.4 percent estimate in a Bloomberg News survey of seven economists.

Asian stocks rose today on speculation central banks will do more to support global economic growth, with the European Central Bank forecast to cut interest rates tomorrow. The MSCI Asia Pacific Index rose 0.5 percent as of 1:44 p.m. in Tokyo. In Hong Kong, Sands China was down 1.6 percent.

‘Spending Less’

Zhu Caijuan, 38, is among Chinese visitors who say they’ve curbed their spending in Hong Kong. A slowdown in homebuilding has affected her family’s construction business and she’s “definitely spending less,” Zhu, who’s from Hangzhou in Zhejiang province, said at the Harbour City shopping complex in Tsim Sha Tsui yesterday.

At the same time, the strength of the yuan and Hong Kong’s lower tax rates mean that cosmetics and handbags remain attractive, Zhu said, calculating that her family group had spent HK$100,000 in two days.

Visitor arrivals from China slipped to 2.5 million in May from 2.6 million in the previous month, according to the Hong Kong Tourism Board.

“It’s just simple logic that if you have less tourists coming in to buy gold, to buy diamonds, then you would see quite a significantly bad retail-sales figure,” said Lily Lo, a Hong Kong-based economist at DBS Group Holdings Ltd.

Casino Business

In Macau, gaming revenue rose 12 percent in June from a year earlier, compared with a 52 percent gain in the same month in 2011, according to data from the Gaming Inspection and Coordination Bureau. The latest number was less than estimates from analysts at Citigroup Inc., Nomura Holdings Inc., Bank of America Corp. and Deutsche Bank AG.

China’s government is trying to limit official spending on some luxuries. A ban on consuming shark fin at government expense may take full effect within three years, according to state media reports this week.

In China, retail sales grew 13.8 percent in May, the smallest increase since 2006 excluding seasonal distortions and partly a reflection of waning inflation.

Companies including Nike Inc. have reported a slowdown as the nation’s gross domestic product rose 8.1 percent, the least in almost three years, in the first quarter.

China’s services industries grew at the weakest pace in 10 months in June, according to an index released today by HSBC Holdings Plc and Markit Economics. Similar gauges are due today for places including India, Germany and Russia.

Jewelry Sales

In Hong Kong, sales of jewelry, watches and clocks rose 3.1 percent in May from a year earlier, the government said. That compared with an increase of 61 percent in the same month in 2011, previously-released data show.

Caroline Mak, chairwoman of the Hong Kong Retail Management Association, said retailers have been offering discounts of as much as 50 percent this summer and slow sales of goods such as furniture indicate weakness in local residents’ consumption, too. Sales growth may be “yet to hit bottom,” Mak said.

Hong Kong’s government has indicated that an economic growth forecast of 1 percent to 3 percent for this year may be cut as export demand weakens. Chief Executive Leung Chun-ying, who started his five-year term on July 1, needs to sustain the city’s economic expansion to help fulfill his pledges to aid the poor.

Less Optimism

Mainland shoppers “are not splashing out as much,” Wong Wai Sheung, chief executive officer of Hong Kong-listed jewelry retailer Luk Fook Holdings (International) Ltd., said at a briefing on June 28. “I’m not too optimistic about the jewelry market this year.” Luk Fook’s shares have fallen about 38 percent this year, compared with a 7 percent gain for the benchmark Hang Seng Index.

Tourists from the mainland have dropped their “exaggerated” spending habits, said Alan Chun, manager of the Gaily Jewellery Co. Ltd. store on Queens Road, Central.

“There aren’t big purchases anymore,” said Chun, referring to diamond and jade products that sell for between HK$100,000 and HK$1 million. “There are still regular ones -- jewelry priced around HK$30,000 that people buy just for fun.”

The comments from Hong Kong retailers interviewed yesterday contrasted with the confidence of Prada SpA, the Italian fashion company and maker of $2,950 perforated patent-leather handbags, that Chinese demand for its luxury goods will be sustained. The company’s first-quarter profit more than doubled.

Elsewhere in the Asia Pacific region today, Australia reported an increase in retail sales. Malaysia’s exports rebounded, growing more than economists estimated in May after falling for two months, giving the central bank scope to keep interest rates unchanged.

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