HONG KONG has beaten Singapore and 140 countries to be named the world's freest economy, according to the 1996 Index of Economic Freedom. It had the highest scores for freedom of trade, taxation, legislation and various economic factors in the newly-released report conducted by the Heritage Foundation, an American research institute. The territory beat arch-rival Singapore, with which it scored equal marks a year ago when they were jointly graded most liberal trading centre. Singapore was the second-freest economy this year while Bahrain ranked third and Taiwan came eighth. China was described as 'mostly not free', and came 121st with Mauritania and the Congo. All countries were rated on the areas of trade policy, taxation, government consumption of economic output, monetary policy, capital flows and foreign investment, banking, wage and price controls, property rights, regulation and black market. An overall score was granted based on these 10 areas. The index did not include post-1997 uncertainties, despite strong concern over Hong Kong's political and economic autonomy after the handover of sovereignty. Foundation president Edwin Feulner said: 'We do not make any projection as it is a snapshot report and we make our index based on actual current situation and current legislation. 'At this time Hong Kong is practising a solid sensible economic policy. 'There is certainly concern about what will happen after 1997 and from our perspective, this will be a challenge for the future SAR government.' Hong Kong was characterised as one of the most accessible markets with virtually no barriers to foreign investors. The territory achieved the freest standard in all areas except taxation, monetary policy and wage and price controls. The average 8.6 per cent inflation and Government price controls on rent, public transport and electricity brought slightly less favourable remarks in these areas. Singapore performed better in monetary policy with its much lower inflation rate - 2.7 per cent - but was perceived as less free in banking where restrictions on foreign banks had been imposed. Japan and South Korea, ranked 15th and 22nd, were believed to have tightened restrictions on trade as both countries, though still 'mostly free', saw a slight diversion to the repressed end of the rating scale. Several countries including Panama, Poland and Indonesia showed significant improvements, while Brazil, Italy and Mexico were reported to have moved in the wrong direction because of stronger protectionism. China's rating was unchanged from last year. It performed worst in areas of trade and government consumption where high tariffs and the huge state-owned sector had deterred foreign imports and resulted in Beijing accounting for almost the entire gross domestic product of the country. However, Beijing's pledge to cut tariffs, made at the recent Asia Pacific Economic Co-operation (APEC) summit in Japan, was not considered. 'China would have had a higher ranking if the APEC tariff cut was considered,' Mr Feulner said.