Demonstrators hold up a signs during a protest to demand authorities scrap a proposed extradition bill with China, in Hong Kong, China June 9, 2019. REUTERS/Thomas Peter - RC15BCC8CD00

HONG KONG (Reuters Breakingviews) - Carrie Lam’s government could squander Hong Kong’s privileged position in the eyes of foreign governments. A bill that would allow extradition to the mainland prompted hundreds of thousands to protest on Sunday. If the chief executive ignores the message, Washington, Brussels and others may reconsider their relationship with the territory. That would hurt both Hong Kong and China.

The government says debate on the bill will continue in the city’s parliament this week. It faces fierce opposition. The march was the largest since 2003, when protesters forced the administration to shelve controversial security legislation. The controversy brings together unlikely allies, from ordinary citizens, to international chambers of commerce, judges, and tycoons, united by their distrust of the mainland legal system.

The nightmare would be if the United States decides Hong Kong’s autonomy has been compromised. A May report from the U.S.-China Economic and Security Review Commission noted the new law could trigger a reappraisal of the United States-Hong Kong Policy Act of 1992, which defines the territory as a separate entity to China. Without it, Hong Kong would be subject to tariffs, visa restrictions, and more. That may feel farfetched, but the threat is not unimaginable amidst a bitter trade war.

Local companies would face a cooler reception in markets where mainland entities are subject to scrutiny. Titans like CK Hutchison – part of the conglomerate founded by Li Ka-shing – are already accustomed to a certain wariness when they venture into sensitive sectors. Rival financial centres like Singapore will try to capitalise too as bosses and bankers rethink homes, headquarters, and travel.

Chinese state media have supported the bill, and blamed foreign forces for the unrest. But Beijing has much to lose if those forces withdraw. Hong Kong, which sits outside China’s capital controls with a currency pegged to the U.S. dollar, is a better channel to world markets than Shanghai or Shenzhen. Last year exports passing through the city to and from the mainland accounted for $468 billion, and total trade surpassed $1 trillion. Overseas traders using the Stock Connect programmes generated approximately $126 billion in turnover on mainland exchanges via Hong Kong in May. If Lam turns Hong Kong into just another Chinese city, China itself may rue the day.