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HONG KONG (Reuters) - Increasing civil unrest in Hong Kong is scaring off Chinese tourists, heaping further pressure on retailers which are already grappling with a protracted slowdown in sales.
Pro-democracy protesters are in a tense stand-off with police in Hong Kong's financial district, in the worst unrest since the territory's 1997 handover from Britain.
With mainland Chinese travelers likely to avoid Hong Kong over the long National Day holidays this week due to the protests, downward pressure on retail spending could persist in the former British colony despite signs of a modest rebound.
Retail sales in August rose 3.4 percent from a year earlier, in value terms, reversing six months of decline, helped by improved spending on jewelry, watches, gifts and an earlier start to the Mid-Autumn Festival this year, the government said on Monday. At least three economists had expected a slight fall.
Already hurt by Beijing's anti-corruption campaign, which has led Chinese visitors to tighten lavish spending in the city renowned as a shoppers' paradise, Hong Kong businesses are also facing a slide in the number of tour groups.
Added to which, those who traipse across the border each day are now more interested in basic household products and infant milk formula than luxury handbags and high-end fashion, data shows.
Travel agents said the number of Chinese tours has dropped by up to 30 percent, boding ill for the busy Golden Week holiday that starts on Oct. 1, usually a busy period that retailers rely on for a boost to their sales.
Central Hong Kong descended into chaos on Sunday as activists defied volleys of tear gas and police baton charges to stand firm in the center of the city. The civil disobedience is part of a series of protests that will culminate in an "Occupy Central" blockade on Oct. 1. At the heart of their demands is the right for Hong Kong people to choose the city's next leader, rather than a leader pre-selected by Beijing.
"For overseas tourists, they don't understand much about Occupy Central, but they are concerned if there will be any riots or large-scale rally, and they worry about the refund policy if there is unrest," said Paul Leung, chairman of The Hong Kong Inbound Travel Association, referring to refunds on tours.
It was not surprising to see a 20-30 percent drop in the number of Chinese tours, he said, adding that the size of the groups had also fallen to 20 to 30 people from about 40 in the past.
China's slowing economic growth has been a negative factor for luxury goods makers and Hong Kong retail-related stocks have been sold off lately on weak consumer sentiment and uncertainties due to the civil unrest.. Prada SpA's Hong Kong-listed shares have fallen to their lowest level in 26 months.
"We are concerned about the development," said a spokeswoman from cosmetics chain Sa Sa International. "Sa Sa is closely monitoring the event and will adopt contingency measures when appropriate."
"Social, political tension is clearly driving a few people away because obviously you have a lot of different options. If you're a wealthy Chinese individual, the likelihood is that you've been to Hong Kong two or three times already and you'll have more welcoming places to go to," said Erwan Rambourg, who researches luxury and sporting goods research at HSBC.
South Korea and Japan were among the top options, he said.
Hong Kong's retail sector relies heavily on mainland Chinese visitors, who contributed around one-third of the city's retail sales in 2013, according to Credit Suisse.
Prospects are not looking up yet, as demand for luxury goods continues to slide while spending by locals remains sluggish.
The Retail Management Association has revised the city's 2014 retail sales growth to 5 percent from 12 percent, while Hang Seng Bank trimmed its forecast to 5 percent from 13 percent. Retail sale in terms of value rose 11 percent in 2013.
But some retailers in the Central business district and shoppers are not too worried about the impact of protests.
"If our shops in Central are affected, we will consider shortening operation hours as a measure to ensure the safety of our staff and customers and to avoid losses to the shops," a company spokeswoman from Chow Tai Fook Jewellery said.
"We, however, believe there will not be much negative impact on our business as customers can go to our shops in other locations."
A Chinese visitor in her late 20s, surnamed Zhang, who was shopping downtown where students had boycotted classes to protest, said she would be shopping as usual.
"There are a lot of shopping malls in Hong Kong; we can just go elsewhere."
Additional reporting by Kinling Lo, Twinnie Siu and Christina Lo; Editing by Anne Marie Roantree and Jacqueline Wong