What: Hong Kong's retail sales rise 2.4% in May 2025, marking the first increase in 14 months, despite continued challenges in luxury sectors and changing tourist spending patterns.

Why it is important: This first positive growth in over a year reveals both the effectiveness of government initiatives and the ongoing transformation of Hong Kong's traditional retail model, where visitor numbers no longer directly correlate with retail performance.

Hong Kong's retail sector has reached a significant milestone with its first sales increase since February 2024, as May figures show a 2.4% year-on-year growth to HKD31.3 billion. This improvement comes amid complex market dynamics, with visitor arrivals rising 20% to 4.08 million, including 3.12 million mainland Chinese tourists. However, the relationship between tourism and retail spending has fundamentally changed, with many visitors, particularly from mainland China, opting for day trips and maintaining tight control over expenditure. The strong Hong Kong dollar continues to influence shopping patterns, encouraging local residents to spend across the border while affecting tourist purchasing power. Sector performance remains varied, with jewellery and watches declining 3.2%, while clothing and footwear showed modest growth of 0.3%. The government's proactive approach through tourism promotion and mega events, combined with steady mainland economic growth, suggests potential for sustained recovery, though within a transformed retail landscape.

IADS Notes: The May 2025 retail sales increase of 2.4% marks a significant turning point after 14 consecutive months of decline, though the recovery shows complex dynamics. As observed in March 2025, despite increased visitor numbers, the retail landscape has fundamentally changed, with mainland Chinese tourists evolving into 'special forces travelers' who spend as little as HK USD 400 per visit, drastically down from the 2018 average of HK USD 2,400. The strong Hong Kong dollar continues to play a crucial role, encouraging locals to shop across the border while affecting tourist spending power. This is particularly evident in the jewelry sector's 3.2% decline, though some categories like clothing show signs of improvement with a modest 0.3% growth. The government's strategic initiatives, including multiple-entry visas for Shenzhen residents and enhanced duty-free quotas, appear to be finally gaining traction, though the transformation of Hong Kong's traditional retail model suggests a permanent shift in consumer behavior rather than a temporary downturn.

Hong Kong posts first retail sales rise since February 2024