Experts say Hong Kong’s fiscal strength, robust institutions, and free flow of capital, goods and data seal its status as one of the freest economies in the world. He Shusi and Zeng Xinlan report from Hong Kong.

Hong Kong still is and will continue to be one of the world’s freest economies, pundits say, as the free economic system that underpins this status remains robust despite the city’s removal from a US economic ranking.

The Heritage Foundation, a US think tank, dropped Hong Kong from its annual Index of Economic Freedom, published on March 4. Hong Kong had topped the list for a quarter century and came in second to Singapore in 2020. 

Singapore remained in the top spot in the latest ranking, followed by New Zealand. The United States ranked 20th, and China 107th. 

Macao also dropped out of the rankings. The foundation said the index now includes only those economies that exercise “full sovereign control” over their economic policies. The removals were “partly a consequence of Beijing’s growing control” over the economies of Hong Kong and Macao, the index said, citing “developments in recent years” without elaborating.

A day before the index was released, Edwin Feulner, founder of the foundation, wrote in The Wall Street Journal that “the loss of political freedom and autonomy” over the past two years has made Hong Kong “almost indistinguishable in many respects” from other major Chinese commercial centers.

But credit rating agency Moody’s Investors Service made a different assessment. 

Martin Petch, senior credit officer of sovereign risk group at Moody’s, said Hong Kong’s “superior fiscal strength and macroeconomic resilience” constitutes some key differences between the special administrative region and the Chinese mainland. 

“We expect these characteristics to persist through a period of heightened uncertainty relating to political and social developments, and the ongoing impact of the coronavirus outbreak, which have caused the economy to contract sharply in 2020 and weigh on growth in early 2021,” Petch said in a written reply to China Daily.

The Heritage Foundation’s abrupt removal of Hong Kong from its rankings was seen by many in the SAR as a “political decision” rather than a fair analysis. 

“I’m very disappointed that the Heritage Foundation has made such a political decision,” said David Wong Yau-kar, a Hong Kong deputy to the National People’s Congress, the country’s top legislature. 

The foundation is supposed to assess each economy objectively, covering the rule of law, fiscal health, regulatory efficiency and indicators of an open market, he said. “Its allegation of the central government’s intervention in Hong Kong’s economy is completely untrue,” he said.

Hong Kong is run under the “one country, two systems” principle, which guarantees the SAR its own currency, as well as independent financial, taxation, and monetary systems, said Wong, who also chairs the Mandatory Provident Fund Schemes Authority. 

From the perspective of international investors, Hong Kong’s economy is still free and robust, especially in the free flow of capital, goods and information, he said. 

The Hong Kong Stock Exchange ranked second worldwide in terms of fund raised in 2020, with a total HK$400 billion (US$51.5 billion) in initial public offerings — the highest since 2010. The Hong Kong dollar remained strong under its linked exchange rate system.

“If it (the Heritage Foundation) were to apply the same standards as before to evaluate the economic freedom of Hong Kong and other places, I believe Hong Kong will still be among the top. I’ve not seen any decline in the economic freedom that Hong Kong has enjoyed,” Wong said.

“Hong Kong’s removal from the index will not have a great impact on our economic development. On the contrary, it affects the credibility of the rankings.”  

‘Absolute economic freedom’

Chow Man-kong, associate director of the China Economic Research Program at Lingnan University, said economic freedom should be gauged by monetary policies, foreign exchange control and capital flow — areas in which Hong Kong enjoys “absolute freedom”. 

He said the SAR welcomes foreign capital without any positive or negative listings, and there’s zero control over foreign exchange. “Furthermore, if you look at Hong Kong’s total volume of transactions in the stock market last year, you’ll find it was at a record high despite the pandemic.”

According to Hong Kong Exchanges and Clearing, the local stock market saw an average daily turnover of HK$129.5 billion last year — up 49 percent from 2019. Market capitalization hit a record HK$47.5 trillion — a 25 percent year-on-year increase. 

Allen Shi Lop-tak, president of the Chinese Manufacturers’ Association of Hong Kong, said Hong Kong’s removal from the index is akin to the US scrapping the “Made in Hong Kong” label in its import trade with the city. 

“They are just political means to suppress Hong Kong’s international reputation,” he said.

The US government has required that Hong Kong-produced goods for the US market be stamped “Made in China” since late last year as Sino-US ties continuted to plunge. The World Trade Organization has set up a panel to settle the dispute at the request of the SAR, which is recognized as a separate customs territory.

Shi said that in light of the complex global environment, Hong Kong manufacturers should reduce their dependence on overseas markets and proactively explore the huge domestic market.

Oriol Caudevilla, a FinTech advisor and Researcher from Hong Kong, described the removal of the two SARs from the index as “completely wrong and biased”, which shows a profound lack of understanding of “one country, two systems” and the newly enacted National Security Law for Hong Kong.

Most Hong Kong residents feel they’ve not been affected by the legislation in any negative way, Caudevilla said of the National Security Law which took effect on June 30. 

The law outlaws four types of offenses — sedition, subversion, terrorist activities, and collusion with external forces to endanger national security.

Chess piece in China-US rivalry

“If the US also has its own laws to protect national security, as most countries do, and if most similar laws in other countries are actually harsher, what’s all the fuss about?” Caudevilla said.

“Hong Kong has been treated as a chess piece in the US-China rivalry initiated by former US president Donald Trump, which has been labeled by some as a new Cold War,” he said. 

Hong Kong still enjoys economic competitiveness, with free flow of capital and a well-respected rule of law. 

“In other words, regardless of what changes have been made to the economic freedom index, Hong Kong remains one of the world’s freest economies, one of the most important global financial hubs and one of the best places in the world to do business in,” Caudevilla said.

Contact the writers at heshusi@chinadailyhk.com