It was the ninth straight year that Hong Kong has topped the annual study by the Heritage Foundation and the Wall Street Journal, which praised the territory's lack of trade barriers, low taxes and strong property rights.

But the gap with No. 2 Singapore is getting smaller, the authors said. Luxembourg and New Zealand tied for third in the survey, Ireland was fifth, and the US tied for sixth with Denmark and Estonia.

"The difference between No. 1 Hong Kong and No. 2 Singapore is closer than it's ever been before," said Edwin Feulner, president and chief executive of the Heritage Foundation, a Washington-based conservative think-tank.

The survey ranks countries according to 10 factors, including trade policy, government intervention in the economy and the size of the black economy.

A jump in public expenditure hurt Hong Kong's rating in terms of government intervention in the economy, while Singapore scored better due to a tax cut, foundation executives said at a press conference.

Mr Feulner also expressed concern about a proposed antisubversion law unveiled in September. The plan has drawn fire from critics who worry that the law will gradually erode Hong Kong's freedom of _expression, a holdover from British colonial days before the city reverted to Chinese rule in 1997.

"One of our potential concerns is that if the implementing details include restrictions on the free flow of economic information, then that in fact could adversely impact on Hong Kong's economic future," Mr Feulner said. "The devil is in the details."

Mr Feulner told reporters that he met with Financial Secretary Antony Leung to discuss Hong Kong's response to the territory's budget deficit, which stood at a record HK$70.8 billion (US$9.08 billion) at the end of September, halfway through the fiscal year.

"I think they know what they're up against," Mr Feulner said of the meeting. "But there are some tough calls ahead in the near future."

China finished with the same score as last year but slipped six places to 127th. The foundation said China's accession into the World Trade Organization had not led to any substantial policy changes.

"In fact, in some sense, there's been some backsliding," said Gerald P. O'Driscoll, director of the foundation's center for international trade and economics. "We've had a lot of complaints that suddenly it's become more difficult, not easier, to export agricultural commodities into China," he added.

The report asserts that 74 out of 156 countries surveyed, or nearly half, are economically freer than before, despite a global economic downturn and the political instability ignited by the US-led war against terrorism.

But 85 of the countries rated remained "mostly unfree" or "repressed," with North Korea ranked the most economically repressed country in the world.

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