Hong Kong on Tuesday retained the title of the world's freest economy for the twentieth year in a row, with rival Singapore closing the gap between the two cities.

The rating shows how the southern Chinese financial hub remains one of the world's friendliest places to do business but there were concerns populist government policies and the perceived level of corruption could tarnish that reputation.

The Index of Economic Freedom for 2014, published annually by the Heritage Foundation and the Wall Street Journal, showed that Hong Kong, along with Singapore, Australia and Switzerland were judged the freest economies in the world.

"[Hong Kong's] overall score is slightly better than last year due to improvements in government size and regulatory efficiency that offset a decline in freedom from corruption," the Heritage Foundation said on its website.

The Asian financial hub recorded its second highest economic freedom score of 90.1 out of 100 and has now topped the table every year since the index was launched in 1995.

"A high degree of market openness, as measured by trade freedom, investment freedom, and financial freedom, has been complemented by a transparent regulatory environment and competitive tax regime," the foundation said.

However, "populist policies that increase spending and empower the administrative bureaucracy, as well as an increasing level of perceived corruption", held the city's overall rating back, it said.

The government in 2012 implemented several measures to curb rising property prices, including an unprecedented bid to restrict the number of non-local homebuyers with a 15 percent property tax on foreign investors after residential prices had jumped 120 percent from 2008.

Hong Kong leader Leung Chun-ying's administration have been plagued by several scandals, including illegal structures at his luxury home and the resignation of one of his ministers who was found guilty of housing fraud.

The former British colony was returned to China in 1997 and has its own government and legal system, with its residents enjoying rights and freedoms unknown on the Chinese mainland.

But while the city is known for its open approach to business, many locals increasingly fret about the influence of Beijing over other key liberties such as freedom of speech and the ongoing push for universal suffrage.

In the latest rankings Hong Kong was closely followed by Singapore, with a score of 89.4 thanks to a more dynamic and competitive financial sector and an openness to global investment and trade, the foundation said.

The index evaluates four general areas including rule of law, regulatory efficiency, limited government and open markets.

The world average economic freedom score for 2014 was 60.3, slightly higher than last year, and is the highest average in the index's history.

North Korea was ranked the lowest on the index, followed by Cuba and Zimbabwe. Mainland China was ranked 137th.