BUSINESSMEN are warning that the high cost of doing business in Hong Kong may impair its competitiveness, even though the territory is said to have the world's most-free economy. For the second consecutive year, the Heritage Foundation, a United States research institution, has placed Hong Kong at the top of its 1996 Index of Economic Freedom. Government officials and the private sector welcomed Hong Kong's top placing among the 142 countries surveyed. This year Hong Kong managed to edge out Singapore. Last year the two tied for the top spot. President of the American Chamber of Commerce Frank Martin said the maintenance of the rule of law and an independent judiciary were crucial to Hong Kong's competitiveness as a Special Administration Region. The Heritage Foundation report gave high marks to the territory for a free and open market devoid of Government interference, and taxes that are low and predictable. Governor Chris Patten, after meeting Heritage Foundation delegates at Government House yesterday, said it was encouraging to see Hong Kong receiving top score in key areas under assessment. He said: 'It remains our ambition to do everything we can to safeguard all those attributes and hope we will be able to keep up with the index both before and after 1997.' Financial Secretary Donald Tsang said: 'We firmly believe in private enterprise and small government so that business will have the freedom and the opportunity to generate the wealth our economy needs. 'That is why we have held fast to the rule that over time public expenditure grows no faster than the economy as a whole.' Mr Martin said the American chamber had a positive outlook on Hong Kong's economic environment and the 1996 index complemented the chamber's own assessment of Hong Kong's business climate for the next five years. The chamber's survey shows that 91 per cent of respondents held 'favourable' or ''very favourable' views of Hong Kong's business environment. But Mr Martin expressed concern about the high inflation rate pushing up operational costs. 'This in the long run maybe an impairment to Hong Kong competitiveness,' he said. The head of taxation at Price Waterhouse, Rod Houng-Lee, also said that rising business costs had affected foreign investment in the territory. He said the lowering of commercial rent to a reasonable price was helping to make Hong Kong more competitive. Toshiya Ugai of the Japanese Chamber of Commerce and Industry said its survey this summer on confidence in Hong Kong's future was satisfactory. Spokesman of the British Trade Commission Bill Dickson said Hong Kong's transparent economic policy and commitment to free economic market were the attractions for British companies investing in the territory. He said high operational costs in the territory were a factor which might affect foreign investment but added that the British were still coming to Hong Kong.