By Hong Liang (China Daily)
Updated: 2008-01-18 07:36

The naming of Hong Kong as the freest economy by United States think tank Heritage Foundation for the 14th consecutive year made headline news in the local media.

Hong Kong people feel deservedly proud of this accolade. It is not only a recognition of Hong Kong's status as the leading financial center in the region, but also an affirmation of the "one country, two system" principle.

To be sure, Hong Kong is facing some serious challenges that have brought into question its relevance in the mainland's economic growth. But the tribute paid by one of the most influential think tanks to our economic system should boost our confidence in our efforts to strengthen the advantages we enjoy over other regional cities and economies.

Among the 10 criteria assessed in the Heritage Foundation survey, Hong Kong ranked first in trade freedom, investment freedom, financial freedom and property rights. We also scored high points in the other areas, including business freedom, fiscal freedom, government size, monetary freedom, labor freedom, and freedom from corruption.

The Heritage Foundation report noted, among other things, the competitiveness of Hong Kong's tax rates and the highly flexible labor market. It also said that there is almost no restrictions on capital flow and that investment is strongly promoted by the Hong Kong government.

Financial Secretary John Tsang was quoted to have said in response to the report: "We are determined to uphold Hong Kong's position as the freest economy in the world. We provide a business-friendly environment where all firms can compete on a level-playing field and establish an appropriate regulatory regime to ensure the integrity and smooth functioning of a free market."

Indeed, the "smooth functioning of a free market" has always been the foundation of Hong Kong's economic evolution from a trading outpost to a manufacturing powerhouse and, in recent years, a full-fledge financial center. But market freedom does not come free. It has to be nurtured with political discipline and preserved with vigilant supervision.

On numerous occasions in the past, the functioning of the free market system was interrupted by the unraveling of financial excesses, abated by irregular dealings. The fallout from these debacles that shook the core foundation of the economy was not only painful to bear but also threatened to undermine foreign investors' confidence in Hong Kong's capital markets.

To minimize systemic risks, the government has initiated a reform program to bring the regulatory standard in line with those of the more established financial markets in New York and London. The reform focuses on enhancing market transparency.

Despite strong opposition from some vested interests, the reform has made significant progress in winning the confidence and support of the international financial community. We must understand that financial reform is an on-going process because we must continuously upgrade our regulatory mechanism to keep abreast of innovations in the global financial marketplace.

Hong Kong may well be the freest economy in the world, but this does not mean than we have a perfect market. Our property market is still seen to be overly dominated by a handful of mega developers. The combined market share of the large conglomerates is also increasing in other economic sectors, particularly retail.

The government has proposed to introduce a fair trade law to address public concern about collusive price fixing and other unfair business practices to lock out competition. We welcome this law.

E-mail: jamesleung@chinadaily.com.cn

(China Daily 01/18/2008 page8)