Taiwan is ranked 27th in a global economic freedom survey, seven notches up from 34th the previous year, according to the Heritage Foundation/Wall Street Journal 2005 index of economic freedom, which was published on Monday.
Hong Kong was No. 1 for the 11th consecutive year, while China made headway to rank 112th, 16 notches up from 128th the previous year.
Also rounding out the top 10 were Singapore, Luxembourg, Estonia, Ireland, New Zealand, Great Britain, Denmark, Iceland and Australia, in that order.
The 2005 Index of Economic Freedom measures 161 countries against a list of 50 independent variables divided into 10 broad factors of economic freedom.
These 50 variables are grouped into the different categories including trade policy, fiscal burden to the government, government intervention in the country, capital flows and foreign investment, banking and finance and informal market activity.
On a scale of one to five, with one being the highest freedom, Hong Kong scored 1.35, Taiwan 2.29, and China 3.46.
The report said that Taiwan has experienced slower GDP growth as its economy has matured.
Relaxed rules on foreign investment in the transportation, power supply, financial and telecommunications sectors have attracted capital, while unemployment fell to a three-year low.