The government's latest economic figures for Hong Kong's gross domestic product (GDP) and unemployment rate in August are worrying for the tourist industry. They are also of concern because of their potential impact on the territory's economic growth. We clearly must not ignore the city's tourist capacity or the possibility of conflict between local residents and mainland visitors.

In the second quarter, Hong Kong's real GDP growth further slowed to a mere 1.8 percent year-on-year. It dipped for the first time in three years, by 0.1 percent quarter-on-quarter. Unfortunately at the same time, the latest unemployment figures also increased further to 3.3 percent. This weak performance was due to a fall in tourist spending .

Clearly, Hong Kong's economy will suffer some sort of correction (or even a collapse of the property market) when interest rates go up. There is really no way to stop this. The solution is to diversify Hong Kong's economy and base it more on stable, sustainable industries. Tourism is the best example of this.

Some may argue that the tourism industry only contributed 4.7 percent of Hong Kong's GDP last year, much less than trading and logistics (24.6 percent) or financial services (15.9 percent), while the influx of mainland visitors (75 percent of the total 54.3 million visitors in 2013) worsened the problem of overcrowding in Hong Kong and also caused conflict between local residents and mainland visitors.

It has been suggested that the solution to this is to reduce the number of tourists coming from China and review the"multi-entry visa" policy. It is true that the large number of mainland visitors will affect daily life in the city. But there are some issues associated with this, which still have to be clarified.

Firstly, there are quieter times in regard to mainland tourist visits in Hong Kong. Moreover, not all districts are crowded because these tourists mainly gather in districts like Causeway Bay, Mong Kok and Tsim Sha Tsui. Also, parallel trading activities are mainly occuring in Sheung Shui. So it would be a short-sighted policy to simply reduce the number of mainland tourists visiting Hong Kong. Instead, we should divert visitors away from some of these crowed areas by building shopping malls nearer the border - then parallel trading will be less likely to cause crowding in places such as Sheung Shui.

Secondly, because Hong Kong is a tourist destination, the tourist industry directly accounted for more than 250,000 jobs in Hong Kong in 2013 - particularly lower skilled jobs requiring lower education levels. If the number of visitors is continually reduced, then the unemployment rate will rise sharply and many jobs will be lost. This is structural unemployment because the jobless would lack the skills and knowledge required for jobs in other sectors, such as financial services. This will become a more pressing social problem in future. So it is clearly not the best idea to reduce the number of tourists in Hong Kong.

Thirdly, Hong Kong's tourist industry is not only facing the problem of limited capacity due to space limitations, it is also facing strong competition from Singapore, Korea and other similar economies. Disneyland Shanghai will open in 2016. This will put more pressure on Hong Kong Disneyland to attract visitors. And if we limit the number of mainland visitors entering Hong Kong, it could give the impression that tourists are unwelcome.

Therefore, although it is true that Hong Kong people are, to a certain extent, affected by the stresses arising from the influx of visitors, reducing visitor numbers is not a practical solution. It will only harm Hong Kong's tourist industry and economy. Instead, we have to enlarge our capacity to occupy visitors. Tourism is important to both Hong Kong's labor market and GDP growth. We have to be vigilant about the number of visitors coming to Hong Kong and always be aware of how they are actually spending their money.

The author is a researcher at Hong Kong Financial Research Institute.

(HK Edition 10/13/2014 page9)