Hong Kong scored 90.1 on a 100-point scale, 0.8 point higher than last year thanks to a small government and regulatory efficiency, according to the 2014 Index of Economic Freedom, published annually by The Wall Street Journal and the Heritage Foundation, a Washington-based policy research institute, since 1995.
The index compared 178 countries and regions worldwide in 10 categories - property rights, freedom from corruption, fiscal freedom, government spending, business freedom, labour freedom, monetary freedom, trade freedom, investment freedom and financial freedom.
In recent years, populist policies that increase spending and empower the administrative bureaucracy, as well as an increasing level of perceived corruption, have held back Hong Kong's overall rating, according to the index.
Noting that business interests continue to exercise a strong influence in the unicameral legislature and executive branch, it said Hong Kong's freedom from corruption mark dropped 1.7 points to 82.3, the lowest among the list's top six free economies.
"Our corruption scores indicated here reflect the opinion of people in Hong Kong about the level of corruption here, so clearly that concern about corruption has risen here in Hong Kong," Terry Miller, director of the foundation's Centre for International trade and Economics, told the press.
He also said political reform to come into effect in 2017, when the general voters will exercise universal suffrage in selecting Hong Kong's next leader, might cause fluctuations and affect its economic freedom ranking.
Singapore followed closely with 89.4 points, 1.4 better than last year and at all-time high, reflecting improvements in investment freedom and labor freedom that outweigh small declines in monetary freedom and business freedom, the index said.
Australia ranked a distant third with 82 points, followed by Switzerland, New Zealand, Canada, Chile, Mauritius, Ireland and Denmark.
The 10 least free countries are in reverse order North Korea with one point, Cuba, Zimbabwe, Venezuela, Eritrea, Iran, Democratic Republic of Congo, Turkmenistan, East Timor and Republic of Congo.
Japan ranked 25th with 72.4 points, 0.6 higher than last year when it was ranked 24th. Taiwan jumped four ranks to 17th place with 73.9 points, while China slipped one rank to 137th with 52.5 points, up 0.6.