By CHRIS HORTON
http://www.nytimes.com/2014/06/11/realestate/commercial/chinese-shoppers-change-hong-kong-border-area.html
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People line up for packages at the Sheung Shui train station before their return to mainland China. Vast numbers of mainland shoppers are buying in border towns. Credit Philippe Lopez/Agence France-Presse — Getty Images

HONG KONG — Smoking a cigarette outside a mall in the border town of Sheung Shui, a man who gave his name only as Chen stands next to a wheeled cart filled with purchases. He is visiting from the Chinese city of Shantou, 177 miles away, a trip he makes several times a year.

“When I come to Hong Kong, it’s mainly to buy medicine — maybe some food products, too,” said Mr. Chen, who declined to provide his full name because of a crackdown on illegal exporting. “There are more brands available here, many of which you can’t find back home. On the mainland, there is also a lot of counterfeiting.”

Shoppers like Mr. Chen are the new face of Chinese spending in northern Hong Kong, and their vast numbers are changing the landscape near the former British colony’s border with the mainland. Retail space in these areas, collectively called the New Territories, and along the rail line running through them, is increasingly oriented toward mainland day-trippers and “parallel traders” from Guangdong, the southern Chinese province, who buy items for resale at a markup in China and avoid import taxes.
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Projects in the northeast New Territories may displace more than 6,000 farmers and villagers. Credit Lam Yik Fei/Getty Images

According to mainland customs data, more than 20,000 parallel traders cross the border daily, not including thousands of individuals doing personal shopping. Added to an acute housing shortage, this has led to more than $15 billion worth of planned construction, including millions of square feet of shopping and thousands of new apartments. But even as business booms, the influx pushes up retail rents and forces businesses aimed at local residents to move or close.

More than 6,000 farmers and villagers will be displaced by projects in the northeast New Territories, according to local media reports. Paul Chan Mo-po, the Hong Kong secretary for development, said compensation packages would be offered to eligible households. Subsidized housing has been set aside for those losing their homes, he added.

Many villagers and farmers affected by new construction are unhappy about the forced relocations. Lee Siu Wah, a fourth-generation resident of Kwu Tung, said converting farmland was “unfair to villagers and not sustainable.”

Sheung Shui is the Hong Kong town closest to the border. From morning until night, mainland shoppers pump money into this little-known part of Hong Kong. “The best-selling products here are milk powder, diapers and red wine,” said Wong Laiping, holding a box of Franzia wine at her store in Sheung Shui, which also has a currency exchange counter. “It’s all headed over to Shenzhen.”

Adjacent to Sheung Shui’s railway station, retailers at the busy Landmark North shopping mall, where tenants include Rolex, Tissot, The Body Shop and Estée Lauder, said that 75 to 90 percent of their customers were mainland Chinese.

David Ji, director and head of research and consultancy in greater China for Knight Frank, said average rents of retail space in the New Territories increased 29 percent last year, more than double Hong Kong’s overall increase. There is still a significant gap between retail rents in the New Territories, at 134 Hong Kong dollars, or $17.29, per square foot per month, and the rate of 174 dollars on Hong Kong Island.

“Retail facilities in the New Territories, in particular those along the railway and near the border, are expected to remain in demand, with mainland visitors’ shopping patterns moving from the high end of the market to midpriced products and daily necessities,” Mr. Ji said.

Although a slowing economy and campaigns against extravagant consumption by government officials have hurt most luxury shopping hubs in Hong Kong, business has been booming in the New Territories. This is especially true along the East Rail Line, which links China with Hong Kong and runs through Sheung Shui and the towns of Fanling, Tai Po and Sha Tin, all of which offer walking access to large malls.

More than half of mainland visitors to Hong Kong in 2013 came from Guangdong, according to the market research firm Nielsen. Shenzhen is the primary gateway for visitors from Guangdong, which last year became the first Chinese province with a gross domestic product of more than $1 trillion, making it the world’s 16th-largest economy, just after South Korea.

Large-scale mixed-use developments planned by the government for the New Territories will add more retail space and increase housing supply, especially government-subsidized housing. Last September, the Hong Kong government said one-seventh of its population was living below a poverty line of 3,600 Hong Kong dollars in monthly income for a single individual, or 14,300 dollars for a family of four.

One major initiative, the Northeast New Territories New Development Areas, involves building more than 60,000 apartments for about 175,000 people by 2022 and merging the towns of Sheung Shui and Fanling into a town of 500,000. It is projected to cost $15.5 billion.

Similar population clusters in the northwest New Territories at Yuen Long South and the proposed Hung Shui Kiu New Development Area are in the planning stages. So is a proposal to convert Tung Chung on Lantau Island into a new central business district, drawing upon its proximity to the city’s international airport and the Hong Kong-Zhuhai-Macau bridge. The bridge, expected to be completed in 2016, will offer road access to the west side of the Pearl River Delta for the first time, opening a new conduit for mainland shoppers.

Mr. Ji of Knight Frank said the Hong Kong companies Sun Hung Kai Properties and Henderson Land Development were the developers with the largest footprints in the New Territories.

Sun Hung Kai, which with a $34 billion market value is among Asia’s largest developers, declined an interview but said in a statement that New Territories projects in the pipeline included the one-million-square-foot YOHO mall next to the Yuen Long train station.

According to a company report in April, it acquired a new site in the emerging shopping hub of Tuen Mun in February that it will develop into 26,000 square feet of retail space and 140,000 square feet of residential units. Last year, it opened V City, its flagship mall for the northwest New Territories, atop the rail station there.

Sun Hung Kai holds more than 27 million square feet of farmland, primarily along existing or planned rail lines in the New Territories, the report said. The company owns 13 shopping malls in the New Territories.

Henderson, which also declined an interview request, has 42.5 million square feet of undeveloped land in the New Territories, the most of any Hong Kong developer. The company holds 2.7 million square feet of land in the northeast new development areas alone, which could be sold to the government for $270 million to $410 million, according to a 2013 J. P. Morgan report.

Those high stakes led Mr. Lee, the fourth-generation resident, who is a manager at a local engineering company, to help organize a May 10 protest outside Hong Kong’s legislature, where more than 100 villagers, farmers and their supporters asked the government to protect the agricultural land of the region. Much of the 2,500 or so acres of active farmland there supplies a growing demand for safe local produce, in the face of concerns about the safety of mainland food.

“We should further develop agriculture in Hong Kong,” Mr. Lee said. “The ones who benefit from these plans are developers and a few others, but not the average Hong Konger. Originally the government needed developers to help with projects; now developers control the government.”

Such sentiments are not uncommon in Hong Kong, where the biggest graft trial in the city’s history is underway; the Sun Hung Kai co-chairmen and brothers Thomas and Raymond Kwok are accused of bribing Hong Kong’s former No. 2 official, Rafael Hui.

Declining to comment on the trial, Mr. Chan, the development secretary, said that planning for new projects was open and transparent.

“We place great emphasis on public engagement in carrying out different planning and development studies,” he said.[/size=4]