After 25 years on top, Hong Kong is no longer considered the world’s freest economy, according to a US think-tank. It has rated the city second after Singapore in light of the recent protests, with the government blaming the unrest for tarnishing the city’s reputation.

The annual Index of Economic Freedom ranked Hong Kong the freest in the world between 1995 and 2019. The Heritage Foundation report said the 2020 downgrade was primarily caused by the investment freedom score. According to the report, the favourable investment climate was undermined by “intensifying uncertainties related to security issues” which heightened the sense of risks amid “high degree of competitiveness and openness.”

Photo: Studio Incendo.

The conservative think tank expressed concerns over the city’s rule of law: “The independence of Hong Kong’s judicial system was seriously imperilled.”

Large-scale protests erupted last June over the government proposal for a now-axed extradition law which permitted political dissidents to be arrested and transferred to the mainland. Over several months, they morphed into sometimes violent displays of dissent against police behaviour, amid anger over Beijing’s encroachment. “The ongoing political and social turmoil has begun to erode its reputation as one of the best locations from which to do business, dampening investment inflows,” the report read.

Investment Freedom of Hong Kong and Singapore in 1995-2020. Photo: 2020 Index of Economic Freedom, Heritage Foundation.

A government spokesperson gave an immediate response to the report on Tuesday: “The high level of civil disobedience, acts of vandalism and intimidation of people holding a different political standpoint have inevitably tarnished Hong Kong’s reputation as a safe and orderly place.”

The spokesperson blamed “social unrest and turbulence” and overseas perceptions for the dwindling investment environment score, but also struck a positive note: “With the further opening up and deepening of economic reform in the Mainland, Hong Kong is poised to be both a ‘facilitator’ and a ‘beneficiary’ of important national development strategies such as the Guangdong-Hong Kong-Macao Greater Bay Area and the Belt and Road Initiative,” they added.

Photo: GovHK.

In previous reports, the Heritage Foundation also warned of China’s political interference, particularly with regards to the city’s judicial independence as Beijing could “effectively [limit] the power of Hong Kong’s Court of Final Appeal,” the 2018 report read.

Hong Kong has also seen damage to its judicial effectiveness, monetary freedom, and governmental integrity this year, according to the think tank.

In response, pro-democracy lawmaker James To said in a press statement on Tuesday: “Hong Kong needs recognition from the international community in order to be a metropolitan city and secure its place as an international financial centre. Carrie Lam’s government must take into consideration others’ view towards Hong Kong’s rule of law, judicial independence, freedom of speech and press freedom.”

James To Kun-sun. File photo: HKFP/Catherine Lai.

The annual index measures 12 freedoms spanning from open markets to the rule of law across 186 territories. The index indicates whether a states’s economy is free, mostly free, moderately free, mostly unfree or repressed. New Zealand, Australia and Switzerland are also among the top five in 2020.