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Hong Kong: Mapping the Declining Economic Freedom of China’s Gateway to the Global Economy

Written by Adam Lee for Hong Kong Polictics/ Legal Issues.


Last month, the Canadian non-partisan think tank, Fraser Institute, released its annual Economic Freedom of the World report, declaring that Hong Kong has slipped down to second position in its ranking of 165 jurisdictions by economic freedom.[1] While Singapore edged Hong Kong out by a mere 0.01 points (on a 10-point scale) according to data from 2021, this is the first time that the latter has not sat atop the Economic Freedom of the World (EFW) index in all available data spanning back 70 years.[2] Sitting at an EFW index of 8.55, this decline leaves many seeking to uncover the underlying causes, but — more importantly — it raises questions about the potential implications for this often-touted leading hub of international finance.[3] And what exactly is at stake for the People’s Republic of China (PRC)?

Barriers and Losses

A cursory glance at the metrics for calculating the EFW index reveals the reasons for the dip in economic freedom. Since the previous report, “new and significant” barriers to entry have been imposed, the employment of foreign labour has been limited, and the costs of doing business have risen.[4] However, these regulatory challenges are only half of the picture. The economic freedom report also noted the “increased military interference in the rule of law”, as well as an “eroding confidence in judicial independence and the impartiality of Hong Kong courts”.[5] Indeed, of the five indicators used to calculate Hong Kong’s economic freedom, its performance was the worst in Area 2, or ‘Legal System and Property Rights’.[6] Most notably, this wave of developments is indicative of the growing influence of Beijing which threatens the “one country, two systems” principle, a constitutional promise of autonomy which was negotiated at the end of the territory’s colonial rule.

The Hong Kong government’s press release dismissed the claims of diminishing independence in the territory’s institutions as “groundless and unsupported by objective evidence”, while condemning allegations of the Mainland’s military interference as “fictitious and contrary to the facts”.[7] This issue would be impossible to discuss without reference to the PRC’s implementation of the National Security Law (NSL) in 2020. This heightened level of scepticism and uncertainty over the future of Hong Kong in the hands of the PRC is a concern for international businesses. In particular, the NSL’s provisions on its scope of application purport to be extraterritorial, applying to offences committed “from outside the Region by a person who is not a permanent resident of the Region”.[8] Combined with the NSL’s wide-sweeping powers of investigation, arrest, and the confiscation and freezing of assets that have compelled domestic giants like the parent company of the Apple Daily newspaper to wind up, it is likely that no company will be completely invincible in this new era for Hong Kong.[9] In this way, the Fraser Institute’s finding sheds light on the inextricable link between, on the one hand, civil and political freedom and, on the other hand, economic freedom.

According to a senior fellow at the Fraser Institute, this puts Hong Kong’s prosperity at risk.[10] For a city that has long been hailed as one of Asia’s most important financial centres, it is no surprise that Beijing envisions a key role for Hong Kong in the PRC’s broader economic plans. According to the Hong Kong Monetary Authority, the region acts as an intermediary for an estimated two-thirds of the PRIC’s inward foreign direct investment and outward direct investments.[11] The balancing act to be struck between control and autonomy over Hong Kong’s economy is a task that the ruling Chinese Communist Party (CCP) will be forced to navigate carefully. If, as asserted by one academic, a model of state-directed economic development is in fact essential to the PRC’s conceptualisation of national security, Hong Kong’s economic freedom may not be the biggest priority for the Chinese central government.[12] In other words, the PRC may be willing to sacrifice some of Hong Kong’s freedom if such constraints serve the interests of Xi Jinping’s administration and its associated “wolf warrior” style of confrontation and aggressive pushback against perceived obstacles.[13]

Another expert has weighed in, citing the potentially “expansive and discretionary” application of national security as a justification for limiting foreign investment, as has been seen in China’s biggest competitor, the United States.[14] Given that anything can be a national security matter in the eyes of the Beijing leadership, it is unsurprising that the private business sector may be forced to confront challenges, such as statutory disclosure obligations across multiple jurisdictions.[15] On a similar note, the uncertainty surrounding the NSL has prompted companies to move their seat of arbitration from Hong Kong to none other than Singapore.[16]


Ultimately, the restrictions on economic freedom reflect the CCP’s tightening control over Hong Kong, shifting the territory’s world reputation as a haven of financial and commercial freedom to a keystone in the PRC’s international project. For some commentators, this signals a waning in Hong Kong’s economic significance as international businesses come to terms with political and legal uncertainty, especially concerning the NSL. For others, the case is less clear-cut in light of the wider context of China’s economic growth. In any case, there is the potential for far-reaching implications on how the city’s financial role on the global stage is characterised and, in turn, how global businesses will respond to new challenges.



[1] James Gwartney, Robert Lawson and Ryan Murphy, ‘Economic Freedom of the World: 2023 Annual Report’ (Fraser Institute, 2023), 7 <> accessed 16 November 2023.

[2] ibid.

[3] ibid, 8.

[4] ibid, vii.

[5] ibid.

[6] ibid, 13.

[7] Government of the Hong Kong Special Administrative Region, ‘Hong Kong continues to rank among top of world's freest economies’ (2023) <> accessed 16 November 2023.

[8] Law of the People's Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region (2020), art 38.

[9] ‘Apple Daily: Hong Kong pro-democracy paper announces closure’ BBC News (London, 23 June 2021) <> accessed 16 November 2023.

[10] Lee Ying Shan, ‘Singapore is now the world’s freest economy, displacing Hong Kong after 53 years’ CNBC (Englewood Cliffs, New Jersey, 21 September 2023) accessed 16 November 2023.

[12] Chieh Huang, ‘China’s Take on National Security and Its Implications for the Evolution of International Economic Law’ (2021) 48 Legal Issues of Economic Integration 119, 120.

[13] Ben Westcott and Steven Jiang, ‘China is embracing a new brand of foreign policy. Here’s what wolf warrior diplomacy means’ CNN (Hong Kong, 29 May 2020) <> accessed 21 November 2023.

[14] Imogen T Liu, 'The economics of national security in Hong Kong’ (The Interpreter, 7 July 2020) accessed 16 November 2023.

[15] Dennis WH Kwok and Elizabeth Donkervoort, ‘The Risks for International Business under the Hong Kong National Security Law’ (2021), 1 <> accessed 21 November 2023.

[16] ibid, 2.

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