Loading The US has been slow to act as China systematically erodes the "one nation, two systems" model established by Britain and China in 1984. The mood has suddenly changed. The Hong Kong Human Rights and Democracy Act introduced in the US House and Senate last week - backed by both parties - cocks the trigger on what amounts to a sanctions regime covering trade, finance, and technology. "If all this rolls out, Hong Kong is going to be just another Chinese city," said one of the drafters. The text links directly to the Emergency Economic Powers Act and calls for punitive action if Beijing further eviscerates the enclave's legal autonomy. For the current status quo to continue, the US administration must justify to Capitol Hill why the territory still deserves special treatment under the US Hong Kong Policy Act of 1992.

The rating agencies have begun to issue warnings. Fitch says its AA+ grade "rests on the assumption that the territory's governance standards, rule of law, policy framework, and business and regulatory environments remain distinct from that of mainland China". Hong Kong's protests offer Donald Trump another irresistible weapon against Beijing. Credit:AP Carrie Lam, Hong Kong's chief executive, suspended the extradition bill over the weekend but remains defiant. She called the legislation a necessary objective - a "good thing" - and left no doubt that the authorities are playing for time. Swarms of demonstrators again poured out into the streets. Their goal has changed. They now demand Ms Lam's resignation. The protests carry an echo Tiananmen Square about them. While the news focus has been on the danger of extradition to China for such offences as "picking quarrels" or "running an illegal business" - standard charges used to suppress dissent in China - Hong Kong's business elites are just as alarmed by other clauses. The bill calls for "freezing and confiscating the assets of persons wanted for crimes in other jurisdictions". It brings the vast wealth of Hong Kong within reach of the Communist Party for the first time.

Financial centres are famously "sticky". It is not easy to destabilise a well-established hub. But political shocks can bring matters to a head. Loading Antwerp was Europe's thriving commercial hub and the world's richest city in 1560, a freethinking outpost of the Spanish Habsburg empire. The fall was swift once the Habsburgs began to choke its liberties and the counter-reformation reached fever pitch. Credit Suisse says there are over 850 individuals in Hong Kong who are each worth more than $US100 million ($145 million). Reuters reported that one tycoon with political "exposure" in China is already shifting sums of this magnitude to accounts in Singapore. Paul Chan Mo-po, Hong Kong's financial secretary, issued a warning last month about capital flight but blamed the stress on large outflows from China through the Shanghai Connect link, mostly by foreign investors alarmed over the deepening trade conflict. That is unlikely to be the whole story.

The Hong Kong Monetary Authority has had to intervene repeatedly over recent months to defend the long-standing dollar peg. It forced up interbank Hibor rates last week to levels not seen since 2008, triggering a "short squeeze" to burn the fingers of speculators and shore up the currency. The Hang Seng is one of the most influential sharemarket indexes in the world. Credit:Kin Cheung Such action drains liquidity and is untenable over time. Monetary tightening by the HKMA - forced to shadow the US Federal Reserve - has slowed economic growth to a ten-year low. Retail sales contracted over the three months from February to April. A long squeeze risks popping Asia's most overheated property boom. The Bank for International Settlements says Hong Kong's "credit gap" - an early warning indicator for banking crises - was running at over 30 percentage points of GDP above its long-term trend as recently as early 2018. This was the most extreme reading anywhere in the world. It has left an overhang of leverage. Hong Kong is the financial gateway in and out of China, a conduit for Chinese companies with $US840 billion of US dollar debt. Its banking system is 8.3 times GDP, comparable to Iceland before its system blew up in 2007. A sudden loss of confidence in Hong Kong would have global systemic consequences.

Events in Washington are moving fast. The bill in Congress tees up sanctions against those "complicit in suppressing basic freedoms in Hong Kong". It effectively stamps the scarlet letter on the enclave's top leadership. Loading The bill demands a clampdown on sales of dual use technology and action to verify whether China is using Hong Kong as a back door to circumvent US tariffs. Ultimately it is the prerogative of President Donald Trump to decide whether to suspend special status. He has been coy on the issue, stating distractedly last week that "I hope it all works out for China and for Hong Kong". Mr Trump is unlikely to stand in the way of Congress for long. Hong Kong's protests offer him another irresistible weapon against Beijing. One bad tweet from the Oval Office and east Asia's super-rich may take matters into their own hands.

Telegraph, London