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(Sharecast News) - The Hong Kong stock market fell sharply after China said it would impose a national security law that threatens the "one country, two systems" arrangement between the city and Beijing.
The law prohibits any act "to split the country, subvert state power, organise and carry out terrorist activities and other behaviours that seriously endanger national security".
The wording is at odds with Hong Kong's basic law - the constitution adopted when the UK handed ownership to China in 1997. The law give Hong Kong citizens "freedom of speech, of the press and of publication; freedom of association, of assembly, of procession and of demonstration".
The legislation also says China's national security organisations can set up "agencies" in Hong Kong to oversee the law.
Hong Kong was given a high degree of autonomy in the handover agreement - an arrangement called one country, two systems. That deal has come under strain as protests against Beijing's interference have angered the Chinese government.
Hong Kong's Hang Seng index fell 5% to 23,075.78 as traders feared further protests in Hong Kong and renewed tension between the US and China over Beijing's actions.
The FTSE 100 fell 1.4%, led by HSBC, which makes most of its profit in Hong Kong, and Prudential, which makes the majority of its money in Asia. HSBC fell 4.7% to 380.05p and Prudential dropped 7.4% to £10.29. Standard Chartered, which has a big business in Hong Kong, fell 3.6%.
Neil Wilson, chief market analyst at Markets.com, said: "This is a potentially significant flash point that will stir local protests and will anger the US. At a time of already strained relations between China and the West, this decision will only isolate Beijing even more. Investors will need to add renewed Hong Kong-Beijing tensions into their mix of geopolitical risks, whilst the way it fits into the broader US-China rivalry will be closely watched."
The surprise news was announced before the opening of China's annual National People's Congress, where the government will abandon setting a target for economic output during the Coronavirus-induced downturn.
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