HKThe source of frustration is the sheer number of mainland visitors, which is expected to reach 45 million this year, and 70 million by 2017. Any city might struggle to accommodate these numbers, never mind a congested territory of 7 million.

Furthermore, it’s pretty clear the majority of these visitors are not here to see Hong Kong’s undersized Disneyland but are really traders seeking bargains, courtesy of an outdated exchange-rate regime.

To get a sense of the situation Hong Kong finds itself in, imagine if New York were to have a separate currency and tax regime from the rest of the United States. To replicate the Hong Kong situation, New York would have both significantly lower taxes and a currency pegged at a discount of 25% to the U.S. dollar.

In these circumstances, you might expect half of America to descend on the Big Apple for a shopping bonanza. New York residents would likely be none-too-pleased if they felt they were subsidizing those bargains to non-tax-paying day-trippers.

This is effectively what has happened in Hong Kong as it has accelerated the integration of people and infrastructure with its giant neighbor, while retaining a three decades-old currency peg to the greenback.

While China has re-pegged the yuan higher against the U.S. dollar as its economy has grown, Hong Kong has kept its peg unchanged. In the past six years or so, the rate has gone from 110 yuan for 100 Hong Kong dollars, down to about 78 yuan currently.

This situation means every day seems like a fire sale to mainland visitors who can arbitrage the currency divergence. Now, they are not just buying duty-free luxury goods, but also everyday essentials such as toiletries, which are also cheaper.

The gripe from Hong Kong is that this outsized demand creates shortages, pushes up prices and leads to transport congestion. Among the mainland visitors, about 60% are believed to be same-day visitors, according to Tourism Board estimates.

Craig Stephens @ Market Watch