Hong Kong government warns removing U.S. special status is 'double-edged sword'

U.S. President Donald Trump is due to announce later on Friday his response to the Chinese parliament's advancement of security legislation for Hong Kong, which many lawyers, diplomats and investors fear could erode the city's freedoms.

The former British colony has been wracked by civil unrest amid fears Beijing is curbing the high degree of autonomy it has enjoyed under a "one country, two systems" formula put in place when it returned to Chinese rule in 1997.

"Any sanctions are a double-edged sword that will not only harm the interests of Hong Kong but also significantly those of the U.S.," Hong Kong's government said late on Thursday.

It added that from 2009 to 2018, the U.S. trade surplus of $297 billion with Hong Kong was the biggest among all Washington's trading partners, and 1,300 U.S. firms were based in the city.

Beijing says the new legislation - likely to take effect before September after China's parliament this week approved a decision to advance it - will tackle secession, subversion, terrorism and foreign interference in the city. It could see Chinese intelligence agencies set up bases in Hong Kong.

Beijing's Ministry of Public Security said it would "guide and support" Hong Kong police, which is supposed to be independent from China.

Thousands of people took to the streets in protest this week and were met with riot police firing pepper pellets, in the first major unrest in Hong Kong since anti-government demonstrations paralysed the city for months last year.

The U.S. Department of State said it could "no longer certify that Hong Kong continues to warrant (differential) treatment" from Beijing.

Trump's top economic adviser Larry Kudlow warned that Hong Kong, which has enjoyed special privileges under U.S. law based on its high degree of autonomy from Beijing, may now need to be treated like China on trade and other financial matters.

Chinese authorities and Hong Kong's Beijing-backed government say there is no threat to the city's high degree of autonomy and the interests of foreign investors would be preserved.

Many ordinary Hong Kong residents however feel their city is on the cusp of historic change.

"No matter how it turns out, I’ll always stand on the people’s side," said Samantha Tam, 27. The office worker said the uncertainty had made her put on hold plans to have a baby after she gets married next year.

"When Hong Kong really loses special status, China will see the consequences. I just want to burn together," she said, paraphrasing the popular protest slogan aimed at Beijing: "If we burn, you burn with us."

Hong Kong leader Carrie Lam urged citizens to "join hands to pursue our dreams while putting aside our differences", according to a statement published in local newspapers on Friday.

She said the legislation was needed because of a "terrorist threat". Organisations advocating "independence and self-determination" had challenged the authority of mainland and local governments and pleaded for foreign interference, she added.

The five demands of last-year's pro-democracy protest movement included universal suffrage and an independent inquiry into police handling of the protests, but not independence. A minority of protesters waved "Hong Kong independence" flags.

Independence is anathema for Beijing.

The security legislation, along with a bill to criminalise disrespect for China's national anthem, are seen by protesters as the latest attempt by Beijing to tighten its control on the city.

The security legislation was condemned also by Britain, Australia, Canada and others. Japan said it was "seriously concerned".