Hong Kong Rolls Up the Welcome Mat
On Monday Hong Kong's Chief Executive Leung Chun-ying announced that Hong Kong was contemplating the possibility of reducing the number of mainland Chinese visitors to the territory by 20 percent. The proposal, which he later emphasized was only one option among many to deal with an increasingly crowded Hong Kong, comes at a sensitive time. Tensions between locals and mainland visitors -- 40 million of them in 2013 -- have been rising, manifesting themselves in bitter online battles, name-calling, and a sense that almost two decades since China resumed rule of Hong Kong, the gulf between them is widening.
This is not how it was supposed to be. When China reclaimed Hong Kong in 1997, mainland leaders naively hoped that commerce and people-to-people exchanges would smooth over any cultural or political frictions. However, ever-increasing cross-border traffic has had quite the opposite effect, as Bloomberg News noted on Wednesday: "Public discontent over mainland visitors' purchases of homes, designer handbags and daily necessities prompted street protests in Hong Kong this year that demanded the government limit arrivals."
In February, two of Hong Kong's democratic-leaning political parties proposed imposing arrival taxes on incoming non-Hong Kong visitors. The scheme, which would have had almost no impact on tour groups, wealthy Chinese, or the problem of overcrowding, went nowhere.
Meanwhile, all through the spring, relations between mainland Chinese and Hong Kong's locals became increasingly tense (especially online), finally boiling over in a heated cross-border debate over an online video that showed a mainland couple allowing their toddler to urinate in a Hong Kong street. To outsiders, the debate might have seemed ludicrous. But for many locals the video affirmed a widely-held belief that mainlanders are uncouth yokels destroying Hong Kong's unique culture; for Chinese, the reaction symbolized an arrogant Hong Kong populace unwilling to accept the fact that its smug city-state, in fact, now belongs to China. The immediate effect was to impress upon mainlanders how unwelcome they are in Hong Kong, and during last month's national May Day holiday, the numbers of incoming Chinese tourists dropped for the first time in nine years.
Leung Chun-ying didn't allude to these problems when floating his proposal earlier this week. Instead, the visa debate has focused almost entirely on its economic impact. According to Goldman Sachs, Chinese tourists spent $28 billion in Hong Kong last year, with several major luxury malls attributing as much as half of their sales to the visitors. A 20 percent reduction in individual visas, Goldman Sachs projects, could result in trimming the city's retail sales by 3 to 5 percent.
But as important as the economics of the proposal are, the politics might even be more so, especially as they portend how the residents of Taiwan -- viewed by Beijing as a renegade province -- may react to ever-growing levels of Chinese tourism and commerce. The signs aren't encouraging: In May, young Taiwanese staged massive protests against the possibility of increased Chinese investment in the island's economy. For now, at least, the very factors that seem to be alienating Hong Kong are turning off a generation of young Taiwanese as well.
So far, there's been no official response from Beijing to Leung's trial balloon. But the fact that the Chief Executive -- a member in good standing of Hong Kong's pro-Beijing elite -- even floated the insulting proposal suggests that the Chinese leadership recognizes there's a problem, and is willing to trust its designated local leadership to solve it.
Remaining silent on the matter so as not to be viewed as meddling in the city's affairs is probably wise. But visa restrictions are a short-term solution. In the long run, leaders in Beijing will have to reflect more seriously on why ethnic Chinese regions with deep ties to the mainland still reject the mainland's embrace. Unfortunately, that's a discussion authorities aren't yet willing to have.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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