HONG KONG Hong Kong has lost its position as the Asia-Pacific's best location for doing business over the next five years to Singapore, the Economist Intelligence Unit (EIU) said in a report Wednesday.

Hong Kong slipped to 11th from fifth place out of 60 countries, behind regional arch-rival Singapore which moved to ninth spot from seventh, according to the EIU's latest quarterly business environment rankings.

It is the first time Singapore has taken the top position from Hong Kong and the survey added asia will continue to have a markedly worse business environment than Europe or North America.

The survey noted Singapore was struggling to upgrade its business environment as rapidly as other countries and had slipped two places in the rankings.

The city-state overtook Hong Kong in two categories: policy towards private enterprise and competition and the labor market, AFP quoted the EIU as saying.

"Hong Kong is trying to walk forward, but others are running," said the EIU's Asia Regional Director Graham Richardson.

The fall in Hong Kong's ranking coincided with a structural change in its economy, the EIU said.

"Hong Kong's special role as an entrepot for visible trade with China is likely to diminish," it said.

Hong Kong's average annual gross domestic product (GDP) growth rate over the next five years is likely to drop to 3.3 percent compared with an average of 5.0 percent in the five years before the Asian financial crisis which peaked in 1998, it added.

The EIU said Hong Kong's political environment, macro-economic conditions, government policies towards private enterprise and competition, and the labor market were all likely to deteriorate over the next five years.

The quality of Hong Kong's workforce -- particularly the ability to adapt to the new skills required in a knowledge-based economy -- also remained a major worry.

"Shortages of highly skilled labor will be an endemic problem as Hong Kong seeks to move up the value chain," said Richardson.

Hong Kong Financial Secretary Antony Leung described the EIU survey as "unfair".

"We believe that we still have a very competitive environment and this in a way is underscored by the number of foreign companies choosing Hong Kong as the place to locate their regional headquarters.

"So I believe that hong kong citizens should have more confidence in ourselves so that we not unduly influenced by one of these reports."

However, not all the news was bad for Hong Kong.

"Hong Kong starts from such a competitive position that a slight slippage is hard to prevent," said Richardson, pointing out that the territory still enjoyed the world's most liberal tax regime and foreign trade and exchange controls.

However, Hong Kong's tax regime advantage could be eroded as the government considers introducing a goods and services tax to reduce widening structural budget deficits, it said.

"Singapore's government, in contrast, enjoys a much stronger underlying fiscal position, enabling it to consider cuts in both corporate and personal income tax."

The Singapore government's Economic Review Committee recommended two weeks ago that the government cut taxes to a 20 percent rate for both corporate and personal income tax within three years. However, this is still higher than Hong Kong.

In the rest of the region, only India from 46th place to 41, the Philippines (from 38 to 35), South Korea (31 to 26), Sri Lanka (49 to 46) and Thailand (33 to 32) climbed the global rankings.