HONG Kong and Singapore were ranked the world's freest economies, but they face a growing challenge from a group of European countries that are aggressively liberalising, according to a survey released last Wednesday by the Heritage Foundation and Wall Street Journal.
The two Asian port cities have taken the first and second spots for 12 straight years in the Index of Economic Freedom.
Both were rated as having improved further last year, thanks to reduced government spending in Hong Kong and a cut in tax rates in Singapore, the survey said.
"Hong Kong has the best score it's ever had, and the gap between Hong Kong and Singapore remains fairly substantial," said Edwin J. Feulner, president of Heritage Foundation, a conservative think tank based in Washington.
The index's rankings for the 157 nations in the survey are based on factors including openness to trade and foreign investment, the size of government and its involvement in the economy, regulation of wages and prices, and protection of property rights.
Feulner said the gap between No. 2 Singapore and No. 3 Ireland was quite narrow, and Luxembourg, Iceland, the United Kingdom, Estonia and Denmark are close behind in the top 10.
"The governments in Ireland and Luxembourg are doing some very sensible things," he said, noting the two countries are generally seeking to replicate Hong Kong and Singapore's success in using low taxes, light regulation and strong legal systems to attract corporate investment.
But while one of them may be able to dethrone Singapore, Hong Kong's grip on the top spot looks secure unless it makes major policy shifts, he said.
"For Luxembourg, Ireland, or Estonia to really break through and become No. 1 is going to be difficult because they're working within these constraints coming out of Brussels," he said, pointing to European Union (EU) restrictions on agricultural trade.
Hong Kong Financial Secretary Henry Tang, who is in charge of economic policy, said: "The government is firmly committed to maintaining Hong Kong as a free market economy that accords maximum scope to the private sector."
China and India, two of the world's fastest-growing economies, are ranked quite low: 111th and 121st respectively out of 157 countries.
High taxes, barriers to foreign investment and a strong government presence in the economy through state-owned enterprises kept both countries from being given high ratings of economic freedom, the foundation said.
Hong Kong and China are ranked separately because the former British colony has retained a separate economic and legal system since its return to Chinese rule in 1997.
Myanmar, Iran and North Korea were ranked the least-free economies.
Overall, the survey found that 99 countries improved from last year, while 51 declined and five were unchanged. The only region to see a net decline in the freedom rankings was North Africa and the Middle East.
Feulner said the overall pattern indicates economic liberalisation is generally advancing worldwide.
"This isn't just an academic exercise. More economic freedom means more economic growth, which means higher income for the average person," he said.