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Heritage Foundation drops Hong Kong from 'economic freedom' index

US think tank cites Beijing's control over city's policies, as Singapore tops list

Police stand guard to prevent people from gathering during a demonstration in Hong Kong on Sept. 6, 2020. Last year, Beijing imposed a national security law on the city to quell protests.   © Reuters

HONG KONG -- Hong Kong has been omitted from an influential index that ranks the freedom of the world's economies because of Beijing's tightening control over the territory, an embarrassing exclusion for a city that topped the list for a quarter century and whose government routinely touted its open economic policies.

The Heritage Foundation said its annual "Index of Economic Freedom," issued on Thursday, no longer included Hong Kong and Macao because it "measures economic freedom only in independent countries where governments exercise sovereign control of economic policies."

The conservative Washington-based think tank, which had been a longtime champion of Hong Kong's free-market environment, noted in its report that as special administrative regions, Hong Kong and Macao "enjoy economic policies that in many respects offer their citizens more economic freedom than is available to the average citizen" in mainland China.

But the report said that "developments in recent years have demonstrated unambiguously that those policies are ultimately controlled from Beijing," adding that issues related to the economic freedom of Hong Kong and Macao would now "be considered in the context of China's evaluation in the index."

Tensions between Western countries, and the U.S. in particular, and the governments of China and Hong Kong have been growing in the past two years over issues of trade and Beijing's crackdown on political dissent in the former British colony.

Tung Chee-hwa, second from right, then chief executive of Hong Kong, accepts the Heritage Foundation’s "Index of Economic Freedom" in Hong Kong, in December 1997.   © AP

Beijing's imposition of a national security law in Hong Kong last year and the subsequent arrests of dozens of political dissidents, both in response to widespread anti-government protests in 2019, prompted Washington to impose sanctions on a number of government officials, including Hong Kong Chief Executive Carrie Lam and Xia Baolong, director of the Hong Kong and Macao Affairs Office of China's State Council.

Business leaders in Hong Kong, a hub for companies with operations in the mainland, expressed surprise at the Heritage Foundation's decision.

"This is a bold move after more than two decades of placing Hong Kong at the top of the index," said Tara Joseph, president of the American Chamber of Commerce in Hong Kong.

"Hong Kong was very proud of its place in the index, and this is a wake-up call that their reputation is rapidly declining," she said. "It will certainly put company headquarters and risk planners on Hong Kong watch and raises the risk profile of this city."

"On its own, it won't stop U.S. companies from doing business in Hong Kong, but it highlights a rash of real concerns that will now be even more closely watched," Joseph said.

"For those businesses already heavily invested in Hong Kong, this raises vigilance, but many see a bright future ahead economically," she said. "Many sectors are seeing strong business based on trade with China and Southeast Asia."

George Leung Siu-kay, chief executive of the Hong Kong General Chamber of Commerce, said that his organization was concerned that the decision had "nothing to do with economic freedom."

"Anyone who does business in Hong Kong understands Hong Kong and mainland China's economies are completely different," he said.

Still, he and government officials said they do not expect Hong Kong to lose its appeal with foreign companies.

"Businesses will look at the facts when planning to invest," Leung said. "We don't think the removal will have any effect on foreign investment in Hong Kong," he said, adding that it was "unfortunate" the Heritage Foundation had "tarnished its reputation" with its decision to exclude Hong Kong from its index.

A spokesman for the Hong Kong government condemned the decision, saying the city "enjoys a high degree of autonomy over its economic and trade policies as enshrined in our Basic Law," the city's constitution.

"Hong Kong is and will always remain an open, safe, vibrant and pluralistic international financial and business hub, underpinned by economic freedom, the rule of law and judicial independence," the spokesman said in a statement.

Financial Secretary Paul Chan on Thursday said Heritage's view was clouded by "ideological inclination and political bias," according to a report from public broadcaster RTHK.

"The rule of law is very much respected here -- the independent judiciary is working here," he said.

The former British colony's reign as the world's freest economy started to look shaky two years ago, when it nearly lost the title to Singapore over what Heritage said was a steep decline in the city's "judicial effectiveness."

Hong Kong first topped the annual list in 1995, the year the Heritage Foundation introduced its index, and the city held the crown for 25 years until it was finally overthrown by Singapore last year and slipped to No 2.

Singapore again was named the world's freest economy in this year's index, with a score of 89.7, up from 89.4 last year, with 100 representing perfect economic freedom. Four other countries earned scores over 80: New Zealand, Australia, Switzerland and Ireland.

China, which ranked 107 on Heritage's ranking of 178 economies, had a score of 58.4. The country's economy is considered "mostly unfree," according to the group.

"The loss of political freedom and autonomy suffered by Hong Kong over the past two years has made that city almost indistinguishable in many respects from other major Chinese commercial centers like Shanghai and Beijing," Edwin J. Feulner, founder and former president of the Heritage Foundation, wrote in a column Thursday in The Wall Street Journal.

Describing the city as a "special place" and "almost magical in its openness," Feulner said that he had attended the Hong Kong handover ceremony in 1997.

"My fear then was that Hong Kong might become just another mid-size Chinese city," he wrote. "Sadly, that's exactly what's happened."

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