The United States on Wednesday revoked Hong Kong's special status under US law, opening the way to strip trading privileges for the financial hub as Washington accused China of trampling on the territory's autonomy.
Hours before China's rubber-stamp parliament was set to take a key vote on a new Hong Kong security law that has sparked protests, Secretary of State Mike Pompeo certified to Congress that Hong Kong "does not continue to warrant treatment" under US laws that it has enjoyed even after its handover to China in 1997.
Under a law passed last year to support Hong Kong's pro-democracy protesters, the US administration must certify that the territory still enjoys freedoms promised by Beijing when negotiating with Britain to take back the colony.
"No reasonable person can assert today that Hong Kong maintains a high degree of autonomy from China, given facts on the ground," Pompeo said in a statement.
The determination means that Hong Kong could lose its trading privileges, including lower tariffs than the mainland, with the world's largest economy.
President Donald Trump will ultimately decide which actions to take, said David Stilwell, the top State Department official for East Asia.
"The steps will be considered and they will be as targeted as possible to change behavior," Stilwell told reporters, while acknowledging it was unlikely Beijing would change course.
He said the United States did not want to hurt the people of Hong Kong, adding: "This decision was made by the government in Beijing, and not by the US."
China's National People's Congress is expected Thursday to take another step on the security law that would ban secession, subversion, terrorism and foreign interference -- a step that Hong Kong activists say abolishes basic freedoms.
"While the United States once hoped that free and prosperous Hong Kong would provide a model for authoritarian China, it is now clear that China is modeling Hong Kong after itself," Pompeo said.
Protests also broke out in Hong Kong on Wednesday over another controversial proposed law that criminalizes insults to the national anthem with up to three years in jail.
Police surrounded the city's legislature with water-filled barriers and conducted widespread stop-and-search operations to deter mass gatherings.
Small flashmob rallies gathered in the districts of Causeway Bay, Mong Kok and Central, the latter broken up by officers firing crowd-control rounds filled with a pepper-based irritant.
Police said more than 300 people were arrested, mostly on suspicion of holding an unlawful assembly. Live images showed many of those detained were teenagers.
"It's like a de facto curfew now," Nathan Law, a prominent pro-democracy advocate, told AFP. "I think the government has to understand why people are really angry."
"You can see there are police every corner, it's like martial law in force," added a woman, who gave her nickname Bean, after she was searched.
Police said that they "respect the right of residents to express their views peacefully, but it must be carried out legally," adding crowds were blocking roads.
Public gatherings of more than eight people are banned under emergency anti-coronavirus measures, although the city has halted its outbreak.
China is determined to avoid a repeat of massive protests last year, triggered by an unsuccessful bid to fast-track extraditions to the mainland, in which the Hong Kong legislature was trashed by demonstrators.
Under the "one country, two systems" model agreed before the city's return from Britain to China, Hong Kong is supposed to be guaranteed certain liberties until 2047 that are denied to those on the mainland.
The mini-constitution that has governed Hong Kong's affairs since the handover obliges the territory's authorities to enact national security laws.
But an effort to do so in 2003 was shelved after huge protests by Hong Kongers fearing the loss of cherished rights such as freedom of expression and the press -- liberties unseen in mainland China.
China is motivated by fear of a younger Hong Kong generation that "does not agree with the political system of the Communist Party," said Hua Po, an independent political commentator based in Beijing.
"If they lose control over Hong Kong, the impact on the Chinese mainland will be huge. So the future policy of the Communist Party towards Hong Kong will be tightening politically and opening economically," Hua said.
Beijing has been infuriated by Hong Kongers -- especially football fans -- booing the national anthem to signal dissatisfaction with China.
The anthem bill will likely be approved next week after further debate following its second reading on Wednesday.
"As Hong Kongers, we have a moral responsibility to respect the national anthem," Matthew Cheung, Hong Kong's de facto deputy leader, told reporters.