Curbs on mainland visitors

Under the new arrangement announced by Chinese authorities on April 13, the public security bureau in neighboring Shenzhen will stop issuing multiple visit passes to people who live in the border city.

Instead, Shenzhen residents applying for an "individual visitor" visa - which allows for one week's stay in Hong Kong from the date of entry - will only be permitted to enter the city once.

Previously, Shenzhen residents could enter and leave the territory multiple times during the week in which the visa was in effect.

This is the first time the "individual visit scheme" has been scaled back since its introduction in 2003, originally as a means of supporting Hong Kong's economy following the outbreak of SARS.

In a DW interview, Chang Liu, China economist at Capital Economics, talks about the reasons behind the restrictions and their impact on the Hong Kong economy.

DW: How will the new restrictions likely affect the Hong Kong economy?

Chang Liu: The new restrictions will affect only a small proportion of visitors to the territory. The retail sector will be put under further pressure, but we think the impact on the broader economy should be small.

Officials say they expect the new scheme to reduce visits to Hong Kong by three to four million a year, or around six to nine percent of the 47 million visits made by mainland residents to the territory last year.

Under the assumption that those prevented from making multiple visits spend roughly the same per visit as other tourists and that their behaviors do not otherwise change, this would lead to a reduction in spending equal to 0.5 percent or 1.0 percent of GDP.

But this is likely to be an overestimate. Shenzhen "parallel traders" should make up for some of the fall by increasing the amount they spend per trip.

What's more, a large proportion of those engaging in these activities are actually Hong Kong residents who can expand their operations in response to having fewer competitors.

Which parts of the economy will be most affected?

Most of the impact will be borne by the retail sector. Under the new rule, retail spending could fall by 2.5 percent to 3.7 percent - putting further downward pressure on the sector, which has underperformed of late (sales contracted by 2.5 percent year-on-year in 2014).

How important are Shenzhen visitors to Hong Kong in economic terms?

Spending by mainland visitors in Hong Kong was equivalent to nearly 10 percent of GDP in 2013.

However, the new restriction only limits the number of visits that Shenzhen residents can make to the territory within the period of a week. As a result, it will not affect the majority of visitors from Shenzhen and only a small proportion of mainland visitors overall.

What are the reasons behind the new restrictions?

The main reason for the restriction is raising public anger in Hong Kong against "parallel traders," who buy goods from Hong Kong to re-sell at a higher price on the mainland, which have sparked a number of protests early this year.

Locals blame these "parallel traders" for congesting pavements and pushing up the prices of goods and rents.

Could the new arrangement lead to a broader slump in tourism from mainland China?

There is a risk that the new arrangement could lead to a broader slump in tourism from mainland China due a perceived raise in anti-mainland sentiment. This would have a much more profound effect on the economy, but we do not think it is likely.

This is not the first time that anti-mainland sentiment has sparked protests in Hong Kong, yet growth in visits from China remains in the double digits.

The government also has plenty of time to react to changes in sentiment as the rule only applies to new visa applicants.

Current holders of "multiple visits" visas - valid for three months or one year - can keep their passes until expiry.

Chang Liu is China economist at Capital Economics, a UK-based economic research consultancy.