Here is the news from the Economist Intelligence Unit (EIU) assessment of the "Best Business Environment" in Asia:

Singapore, with no natural hinterland of its own, a competitive Malaysia on one side and a politically and economically distraught Indonesia on the other, as well as an interventionist government and domestic economic problems, will provide the best business environment in Asia over the next five years.

Hong Kong, on the other hand, with the natural hinterland of its sovereign China, a (mostly) free domestic economic environment and a (mostly) non-interventionist government, as well as China's WTO entry and solid financial fundamentals to support it, comes in second.

Given such a reading of the relative rankings of Singapore and Hong Kong, it is hardly surprising the SAR Government reacted with something just short of disbelief to the EIU report, calling it "unfair." However, the SAR Government must be careful not to over-react to such reports, lest people think there is more truth in them.

The latest EIU report on the best global business environments issued on April 26 is one of a series of such surveys that have attempted over the years to rank economies around the globe on their likely future attractiveness to business based on a series of quantitative and qualitative criteria.

In the latest survey, Hong Kong has (according to the EIU) slipped in terms of some criteria when compared with Singapore and other countries. Singapore leapfrogs Hong Kong to take first spot in Asia and Hong Kong slips from fifth to 11th overall in the global rankings, but Singapore also slips two places world-wide.

In fact, when the survey is looked at a little more objectively, there is not much difference between the ranks from one through to Hong Kong's 11th place with all those in this top section of the 60 strong table being qualitatively assessed as "very good" for business. This is the highest ranking on offer.

Where the Hong Kong SAR Government seems to have been especially concerned is regarding the EIU's specific comments on some Hong Kong issues, including its political leadership and the implementation of the Chief Executive, Tung Chee-hwa's new accountability system for principal officials.

The EIU's key concerns (all of which are highly debatable) seem to be:

Political effectiveness    Worsening civil-service morale and the uncertain impact on policymaking of chief executive Tung Chee-hwa's new "accountability" system of political appointees contributed to the drop in the political-effectiveness score for 2002-06.

Openness to competition    Continuing concern over the government's cosy relationship with certain sectors of the business community, combined with lack of progress in developing a competition law, were among the causes of the expected decline in the competitive environment for businesses.

Labour skills    The quality of the workforce -- in particular, the ability to adapt to the new skills required in a knowledge-based economy -- also remains a major worry.

In addition, the EIU says the loss of trade to cheaper ports in China is just one external risk to Hong Kong's continuing competitiveness.

The positives are that Hong Kong is still one of the world's freest economies, with the world's most liberal regimes for taxation and for foreign trade and exchange controls, a fact reflected in its continued No.1 world ranking in both categories.

But Hong Kong's lead in having a liberal and uncomplicated tax regime also may be eroded as the Hong Kong government considers broadening the tax base to reduce the structural budget deficit.

Market opportunities for Hong Kong have also improved "on the back of the increased opportunities, particularly in services, anticipated as a result of China's entry to the World Trade Organisation."

In response, the HKSAR Government probably overreacted somewhat with its view that it "regretted that the assessment on Hong Kong was unfair and biased over a number of issues, in particular in respect of the new Accountability System."

"The new Accountability System for Principal Officials will improve Hong Kong's governance, as well as preserve the integrity of our civil service system," an SAR Government spokesman said in outlining details of the system.

Other government rebuttals included:

Tax Structure    Despite a record budget deficit, the government chose not to increase tax or to introduce a consumption tax in this year's Budget. "As a result, we still have a very simple tax regime as well as one of the lowest tax rates throughout the region, even taken into account any possible changes in the tax regime of Singapore," the spokesman said

Competition Law    "Hong Kong's competition policy, based on a broad policy framework applicable to all government bureaux and departments and supplemented by sector-specific measures, provides us with the flexibility to take appropriate measures to promote competition, having regard to the circumstances in different sectors. For example, we have introduced competition effectively in the telecommunications sector. With an open market and highly competitive economy, we do not see the need to enact an all-embracing competition or anti-trust law."

The SAR Government spokesman also rejected the EIU view that "the government had a cosy relationship with some sectors" and that it instead provided a level playing field for business.

He refuted the view that Hong Kong's role as an entrepot for trade with China is diminishing, adding that it will remain as the prime financial, logistics and commercial centre for the region, in particular Mainland China. "As pointed out by EIU in the report, there will be increased market opportunities for Hong Kong as a result of China's entry into the WTO," the spokesman said.

The spokesman also commented favourably on the quality of the SAR workforce, noting that the government was committed to improving the quality of Hong Kong's our human resources and English skills in schools and the workforce.