However, the foundation also highlighted what it called a decline in judicial effectiveness brought about by Beijing reserving “the right to make final interpretations of the Basic Law, effectively limiting the power of Hong Kong’s Court of Final Appeal”.

“Lam said she disagreed with such a viewpoint,” the press release reads.

“She stressed to Dr Feulner that the power of final interpretation of the Basic Law is vested in the National People’s Congress Standing Committee, while the power of final adjudication of the Hong Kong Special Administrative Region shall be vested in the Court of Final Appeal.

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“This is a unique arrangement that manifests ‘one country, two systems’ and high degree of autonomy. The relevant constitutional order has also been implemented since 1997, and ensured Hong Kong’s prosperity and stability.

“Lam said … Hong Kong’s judicial independence and power of final adjudication are protected by the Basic Law, it was unquestionable that the judiciary has been fair and not been subject to any interference.”

Aside from the disagreement, Lam thanked the foundation for recognising Hong Kong’s efforts on promoting a free market.

She also said Hong Kong must seek to improve itself amid economic globalisation and fierce competition from cities in the region.

“Hong Kong will continue to foster the operation of the free market, and improve our business environment. Tax incentives will be rolled out in this financial year … so that Hong Kong can be more competitive internationally, as well as strengthen its leading role as an international city and financial centre,” Lam said.

Justice minister Teresa Cheng Yeuk-wah later said that although Beijing reserved the final power to interpret the Basic Law, Hong Kong courts were given the power of final adjudication and constitutional interpretation on internal matters. She said the local courts could still decide on cases based on the facts and relevant legal principles.

“This arrangement has performed well since the handover in 1997,” Cheng said, adding that the city was ranked in first place in Asia by the World Economic Forum and World Bank for rule of law.

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The foundation, meanwhile, organised a press conference in Hong Kong to explain its latest index of economic freedom.

Terry Miller, director of its Centre for International Trade and Economics, said the decrease in the city’s score on judicial effectiveness reflected the perception of corporations and individuals in the business world. It might not reflect actual changes in the judicial system.

The foundation relies on the World Economic Forum’s “World Competitiveness Report” and the World Bank’s Doing Business project in assessing judicial effectiveness.

According to the foundation, Hong Kong’s score was 90.2 out of 100.

The rankings are compiled based on 12 factors covering law, governance, market openness and regulations, and Hong Kong’s scores for trade freedom, monetary freedom, and government integrity have increased compared with a year ago.

Singapore, often seen as Hong Kong’s main rival, came in second again but closed the gap, while mainland China was placed at 100th in its study of 180 economies.