World Economic Freedom Report: Hong Kong Drops From Top Position for the First Time

In the latest World Economic Freedom Report, Hong Kong has dropped from the first position for the first time. Profile picture. (weerasak saeku/shutterstock)

The Canadian think tank, the Fraser Institute, has released its latest World Economic Freedom Report. Out of 165 economies, Hong Kong has fallen from the top position for the first time, ranking second. The report states that Hong Kong's latest score is 8.55, which has fallen by 0.4 points over the past two years, significantly worse than the global average decline. The report attributes Hong Kong's decline mainly to the harsh new laws imposed by the Chinese Communist Party (CCP), the Hong Kong National Security Law, rather than just pandemic-related policies. It predicts further declines in Hong Kong's future scores.

The report indicates that the CCP has introduced significant "thresholds," restricted the employment of foreign labor, and increased the cost of doing business in Hong Kong, leading to a 0.25-point decline in the "regulation" component of Hong Kong's score. Additionally, increased CCP military intervention in Hong Kong's rule of law has undermined confidence in the independence and fairness of the Hong Kong judiciary, resulting in a 0.2-point decline in the "legal system and property rights" component.

The Decline in Hong Kong's Freedom Rings Alarm Bells

The report emphasizes that the declining economic and other freedom scores in Hong Kong highlighted in recent reports have already raised alarm bells. It mentions that the Hong Kong National Security Law can impose a maximum sentence of life imprisonment and has led to arrests since its enactment. Hong Kong's score has fallen from its peak of 9.19 in 2010 to a current score of 0.64 points lower, with 0.4 points of the decline occurring over the past two years, well exceeding the global average decline. The Fraser Institute believes this decline is primarily due to the CCP's imposing new stringent laws on Hong Kong rather than just the government's pandemic policies.

The World Economic Freedom Report evaluates scores in five major economic categories. In the "Size of Government" category, Hong Kong scored 7.91, ranking 21st, down eight places from the previous year. The "Legal System and Property Rights" category scores 7.58, maintaining the 21st rank. In "Sound Money," it scores 9.57, ranking 12th, up one place from the previous year. "Freedom to trade internationally" scores 9.04, retaining the top position. The "Regulation" category scores 8.64, dropping from the previous year's first position to the third.

Fred McMahon, a researcher at the Fraser Institute, commented that this is the first time Hong Kong has dropped from the top position, and he expects Hong Kong's scores to decline further as the CCP continues to suppress its freedoms.

Economic, Civil, and Political Freedoms Are Closely Related

Senior Fellow Matthew Mitchell believes that the changes occurring in Hong Kong exemplify the close relationship between "economic freedom" and "civil and political freedom." He points out that the CCP's suppression of dissenting voices and government attempts to control private enterprises inevitably weaken economic freedom, which could impact Hong Kong's prosperity.

Regarding other countries and regions, Singapore has narrowly overtaken Hong Kong to claim the top spot. Switzerland ranks third, followed by New Zealand, the United States, Ireland, Denmark, Australia, the United Kingdom, and Canada. Taiwan ranks 11th, Japan 20th, South Korea 42nd, and India 87th.

Mainland China is ranked 111th, slightly improved from the previous year, but still below Russia, ranked 104th. If Hong Kong's system aligns further with mainland China, there is significant potential for further decline in its ranking.

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The report notes that the 10-year growth in economic freedom was erased in 2020. From 2000 to 2019, the average economic freedom increased from 6.58 to 6.94, but by 2020, it had fallen to 6.77, a score that has remained the same in 2021. The last time the average economic freedom was this low was in 2009.

A Hong Kong government spokesperson expressed disappointment with the report. They responded by stating that various schemes have been established to allow employers to hire foreign labor according to actual needs while safeguarding the employment of local workers, emphasizing that Hong Kong's labor policies have stayed the same. They also commented that law enforcement agencies in Hong Kong strictly follow the law and are not influenced by political positions, suggesting that the report's comments on related law enforcement actions are biased and cast doubt on the fairness of the report's conclusions.

The World Economic Freedom Index released in the report measures the extent to which policies and institutions in various countries support economic freedom. The foundation of economic freedom lies in the freedom of individuals to choose, voluntary exchange, access markets, and compete, and the security of personal and private property.

Industry Insiders: Hong Kong's Drop From the Top Not Surprising

Some financial experts have stated that they are not surprised by Hong Kong's fall from the top position, as the report suggests that the situation could worsen. They point out that the data used in this report is from 2021, and the decline in Hong Kong's situation over the past two years is evident.

They argue that with the Hong Kong National Security Law looming over the city's business environment and personal freedoms, coupled with the city becoming more aligned with mainland China, essentially losing its "One Country, Two Systems" framework, Hong Kong's economic prospects are concerning if this trend continues.

They note that India is at 87th place in this ranking. India is an emerging economic force that has garnered global attention. Over the past decade, India has had an average annual GDP growth rate of 5.5 percent, making it one of the fastest-growing economies in the world. The International Monetary Fund predicts that by 2023, China and India will account for approximately half of global economic growth. Furthermore, India's economic growth rate is expected to reach 6.3 percent this year, surpassing Germany and Japan by 2027 to become the world's third-largest economy.

Additionally, India has many advantages over China, such as a high rate of English proficiency and a younger population. China's median age is 38.4 years, while India's is 28.7 years. China's birth rate is 12.1 per thousand, while India's is 18.7 per thousand.

Daniel Rosen, co-founder of the renowned U.S. think tank Rhodium Group, wrote in 2021 that the cost of the CCP's failed reforms is catching up with China's economy.

Time for CCP to Make Changes is Running Out

Mr. Rosen believes the international community's engagement with the CCP from 1978 to 2015, which paved the way for its economic development, has turned into headwinds. The impending disaster in China's economy seems inevitable, and the time for the CCP to make changes is running out.

At a time when China's economy is languishing, the Xi Jinping regime has put forward several measures to support private enterprises, and some scholars within the CCP system have openly suggested that the distinction between state-owned and private enterprises should no longer be made. However, overseas experts believe such suggestions stem from a rigid CCP mindset, and the CCP system will still harvest private entrepreneurs.

Taiwanese macroeconomist Wu Jialong stated in an interview with The Epoch Times that while the CCP faces economic pressure, it cannot break free from traditional socialist thinking. As the CCP does not respect private property rights, no matter how hard private entrepreneurs work, they will ultimately be harvested by the socialist system.

He noted that the fundamental problem with China's economy lies in the CCP's leadership. When those in power have flawed economic thinking, they cannot allow private entrepreneurs to flourish truly. Furthermore, with China's deteriorating relationship with the United States, even if private entrepreneurs work hard, they may not achieve significant results because of fierce international competition, with many countries and regions increasingly capable of replacing China's role as the world's factory.

Continuing Reform and Opening Up Poses a Risk to the CCP

Mr. Wu also mentioned that the CCP only wants to see economic development within the framework of socialism. It cannot accept the entrepreneurial spirit of capitalism.

He stated that due to economic reforms and opening up, the Chinese people would gradually come to rely on a market economy, consequently reducing their dependence on the government and, in turn, diminishing the need for the Communist Party. Therefore, Xi Jinping believes that continuing to promote economic reforms and opening up poses a risk of the party losing its power.

He explained, "The Communist Party doesn't change its fundamental theory, which is class struggle. Whoever has money, I want to share with them, I want to achieve common prosperity with them. My method is to seize guns and seize knives and then engage in harvesting. So, as long as private entrepreneurs achieve some results, sooner or later, the Communist Party's guns and knives will come to harvest you."

Today, as Hong Kong accelerates to align with the CCP, it contradicts the principles of a free-market economy, making it difficult to avoid a decline in its ranking.