It has taken an extraordinary factor to knock Hong Kong off its perch on top of a widely regarded index of the world’s freest economies, after being No 1 for 25 years. Months of unprecedented social and political unrest are held to blame. The result was a sharp fall in the city’s rating for freedom of investment, pulling down its overall score in the index and leaving the way open for Singapore to climb from second to first place. It may be tempting to argue that anti-government protests will run their course and that, once this is clear, the investment climate will warm, enabling the city to reclaim its “rightful” place at the top of the Index of Economic Freedom compiled by the Heritage Foundation, a Washington-based conservative think tank. But it would be sensible to take this setback on board as a telling example of how quickly social and political instability can change the perception of risk, and as a reminder of how easily Hong Kong could lose a coveted distinction as a financial hub – one it has “owned” for quarter of a century. Indeed, the foundation observed: “The ongoing turmoil has begun to erode [the city’s] reputation as one of the best locations from which to do business, dampening investment inflows”. The city scored lower than in the previous index in the areas of tax burden, fiscal health, and business, labour, monetary and investment freedom, but higher for property rights, government integrity and judicial effectiveness. The scores for government spending, trade and financial freedom – were unchanged Two things about Hong Kong have changed since its early years at the top of the freedom index. Hong Kong no longer ranked world’s freest economy One identified by the think tank is that the city’s economy has become increasingly integrated with the mainland, potentially raising risks to its economic freedom. The other is that more people think governments have a role to play in promoting growth, which could prompt more intervention. The question is how to strike a balance for the government to play a constructive role in encouraging innovation and growth. Hong Kong’s fundamentals are still good if not unclouded, as evidenced in these words from the foundation: “The territory remains a dynamic global financial centre with a high degree of competitiveness and openness, but the sense of risk is also heightened”. These last words resonate in the city’s slide to second place on the index.