Hong Kong reclaims crown as world's most competitive economy as Singapore slips a spot to 4th

Hong Kong’s efforts to create business friendly environment give it edge over rival Singapore and former champion, the US

Despite constant concerns that Hong Kong is losing its edge to mainland and regional rivals, the city has reclaimed the title of the world’s most competitive economy, according to the IMD World Competitiveness Centre.

According to the South China Morning Post, the annual survey of 61 jurisdictions around the world pushed the city up one place to the top for 2016, saying Hong Kong had “encouraged innovation through low and simple taxation and imposed no restrictions on capital flows”.

IMD surveyed more than 5,400 business executives on four main factors – economic performance, government efficiency, business efficiency and infrastructure – while the CASS survey focused on innovation, among other factors.

Hong Kong claimed the top spot in the 2012 IMD rankings, but lost it to the United States for the next three years. Singapore, which ranked fourth in the same survey, was the only other Asian entrant in the top 10 this year.

IMD director Professor Arturo Bris said the city’s efforts to create a business-friendly environment had been central to its ability to defy regional challenges.

Bris said Hong Kong was also valued as a gateway for foreign direct investment in the mainland, “the world’s newest economic superpower”, enabling business there to access global capital markets.

In contrast, the US “was no longer able to maintain its dominance”, falling to third in this year’s survey, behind Switzerland.

Chief Executive Leung Chun-ying said Hong Kong retaking the top spot showed that the city would be able to resist global downward pressure if it made use of available opportunities.

“We should be confident about Hong Kong’s economy,” he said before an Executive Council meeting on Tuesday morning.

He also said Shenzhen had seen rapid advancements in innovation technology in recent years, and Hong Kong could look to it as a reference.

Financial Secretary John Tsang Chun-wah said he was delighted to see that Hong Kong had regained the title of the world’s most competitive economy.

“In light of the fierce competition in the global arena, we will strive to uphold our prevailing competitive edge and continue to search for new growth areas, so as to strengthen our position as an international financial, trading and business centre and enhance Hong Kong’s long-term competitiveness,” Tsang said in a statement on Tuesday morning.

Despite the city’s grim economic outlook, Hong Kong was helped to the top of the list by worse conditions in other economies, analysts said.

“Hong Kong is doing relatively OK ... Many other places are facing much deeper troubles,” Baptist University associate finance professor Billy Mak Sui-choi said.

“Hong Kong is a small and open economy, which enables it to tackle economic headwinds in a more flexible way,” Chinese University lecturer Stephen Wong Yuen-shan said.

Wong said the city managed to climb to the top despite a government that had not done enough to nurture the technology industry and protect labour rights.

“It proves that Hong Kong is a much blessed city,” he said.

But, in the latest annual report on China’s urban competitiveness, the city was again upstaged by rising neighbour Shenzhen.

The CASS report said innovative industries in cities like Shenzhen and Shanghai were booming, which had put some pressure on Hong Kong’s advantaged ­sectors.

Singapore has slipped one spot to be ranked the world's fourth most competitive economy, dragged a little lower by a weak global economy and relatively slow progress of economic restructuring at home.

However, observers noted that Singapore retains an enviably high competitiveness ranking, according to the Sraits Times.

In a phone interview, Christos Cabolis, chief economist at the IMD World Competitiveness Centre told the Straits Times that the economic performance of Singapore has deteriorated, and there are two indications: the lower growth of the economy and a perception the Singapore economy is not as resilient as it used to be.

He noted warning signs of a lack of diversification in Singapore, and that it is surrounded by countries in a productive and reforming mode.

"Singapore is a successful economy but it should not be complacent. It also cannot ignore its neighbours' problems. Asia, and South-east Asia in particular, has suffered a lot this year, primarily due to (slowing) China and oil prices," Dr Cabolis added.

OCBC economist Selena Ling said the deterioration here has probably been in the making for a few years, "given that the global economy has been softer than expected and the increasingly apparent domestic cost and productivity challenges during our economic restructuring".

However, she said that the fact another small open Asian economy - Hong Kong - has outdone the US and Switzerland "means it would not be totally accurate to say Singapore's slide was 100 per cent externally driven, even though China's slowdown and the commodities drag on our key trading partners, like Malaysia and Indonesia, did play a part".

The ranking also showed many major Asian jurisdictions and countries, including Taiwan, Malaysia, South Korea and Indonesia all suffered significant falls from last year, dragged down by lower commodity prices, a strong US dollar and deterioration of balance sheets in both the private and public sectors, IMD said.

"This seems to reflect slow-growth doldrums and corporate problems as an increasing number of firms are restructuring as a result of management corruption," a S. Korean ministry official said, according to the Chosunilbo.

Bris said: "On the whole, there has been a significant drop in Asia's competitiveness since our last ranking. This general decline has been caused by the fall in commodity prices, a strong dollar and the deterioration of balance sheets in both the private and public sectors."

The centre analyses over 340 criteria across four main factors - economic performance, government efficiency, business efficiency and infrastructure.

IMD, a top Swiss business school, also surveyed over 5,400 business executives.

(SCMP,THE STRAITS TIMES, THE CHOSUNILBO)