Hong Kong, a bustling metropolis home to 7.1 million people located at south-eastern coast of China is known not only for large concentration of sky scrapers and its low taxes, but also as an important gateway to China. Granted this piece could be taken in many different directions in light of what has happened in recent months, but that's not what I'm trying to talk about here (at least for now). Because there were so many fashion IPOs last year with what seems like many more to come, I thought it would be interesting to explore Hong Kong's current status as a shopping haven for many in East Asia (including China) and its future when China's reliance on Hong Kong as an interim middleman weans and the luxury market matures on the mainland.
I thought it was cool that Prada would choose my second hometown as the place to go public (in case for those who don't know what an IPO is, here's a link) but of course it was nothing but an extremely strategic move on the company's part. First of all there's the obvious, which is the fact that China will soon be the world's largest luxury goods market if it's not already, and also because Hong Kong is one of the biggest financial hubs in the world with the best expertise in the area to underwrite such deals (most Wall St. firms have their Asia HQs in Hong Kong). This probably stems from the fact that it was part of the British Empire as a colony––which I am sure help jump start the city from the fishing village it used to be. Its status as a colony meant that it escaped from the clutches of the CPC and remained relatively unscathed to past disasters on the mainland such as the Great Leap Forward and the Cultural Revolution (though sadly not WWII). Moreover it is supremely well located on the rim of the South China Sea (lots of controversy over it's name but it's not the point I'm trying to make here so take your pick), giving it easy access to many parts of South East Asia. Though I am quite bullish on China, I cannot be quite as optimistic about Hong Kong.
In short: the city's long reputation as the shopping (and tax) haven of the world will come to cripple the city's potential for long term growth. The low corporate and duty taxes coupled with the lack of sales tax, VAT, annual net worth tax and capital gains tax have made it one of the cheapest places to buy luxury goods in the world apart from Paris. The luxury apparel market is not the only dominant force of the luxury goods in the area; it is also the location of the world's largest jewellery trade show and for famous auction houses like Sotheby's and Christie's etc. Hong Kong has capitalism down to a tee. So it comes to no one's surprise that China's nouveau riche will be flocking to Hong Kong in droves, carrying their cash in trunks and spending it like there is no tomorrow. Of course their voracious consumption of goods has been a huge boon to the local economy in the past decade, sending real estate prices so far up that Hong Kong is the world's most expensive to own a home. The US financial crisis of late 2007 to 2008 was barely felt here. All this growth however has not come without a cost. Among the many problems include the tremendous strain on public resources, though chief among the concerns is the growing tension between the mainland and the city, which made splashes globally through different newspapers and journals (hardly surprisingly given how almost anything about China makes the front page nowadays).
As a gateway for mass consumption of luxury goods, Hong Kong will be interesting place to keep an eye on for some time to come, as a litmus test to gauge Chinese demand for luxury goods.
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