By Jennifer Hansler, Nicole Gaouette and Kylie Atwood | CNN

Secretary of State Mike Pompeo said he certified to Congress Wednesday that Hong Kong no longer enjoys a high degree of autonomy from China — a decision that could result in the loss of Hong Kong’s special trading status with the US and threaten its standing as an international financial hub.

“The State Department is required by the Hong Kong Policy Act to assess the autonomy of the territory from China. After careful study of developments over the reporting period, I certified to Congress today that Hong Kong does not continue to warrant treatment under United States laws in the same manner as U.S. laws were applied to Hong Kong before July 1997,” he said in a statement. “No reasonable person can assert today that Hong Kong maintains a high degree of autonomy from China, given facts on the ground.”

His decision comes after Beijing introduced controversial national security legislation for Hong Kong — legislation that Pompeo again denounced in Wednesday’s statement as a “disastrous decision.” Last week, the top US diplomat warned that the passage of the legislation would be a “death knell” for Hong Kong’s autonomy.

The proposed law has prompted protests in Hong Kong and has been denounced internationally, with observers warning it could curtail many of the fundamental political freedoms and civil liberties guaranteed in the agreement handing the city over from British to Chinese rule in 1997.

Under the “One Country, Two Systems” policy, Hong Kong retains limited democracy and civil liberties despite being under Beijing’s control. The autonomous region also holds a special trade status with the US, which grants it certain exemptions on trade that are not enjoyed by mainland China.

Last year, Congress passed and President Donald Trump signed into law the Hong Kong Human Rights and Democracy Act in support of the region’s pro-democracy protesters. Under that law, the US must annually verify to Congress that Hong Kong remains autonomous from China, or it risks losing its special status.

Trump will determine next steps

A congressional aide told CNN that the certification does not automatically trigger action and the President will determine the next steps.

The loss of its special status would have significant financial implications. The US Consulate General in Hong Kong says it represents more than 1,200 US companies doing business there — more than 800 are either regional offices or headquarters. Hong Kong was the US’ 21st largest goods trading partner in 2018, according to the Office of the US Trade Representative. According to the US Census Bureau, the US exported $6.36 billion in goods and imported $952 million in goods from Hong Kong in the first quarter of 2020.

Bill Reinsch, the Scholl Chair in International Business at the Center for Strategic and International Studies, predicted that a loss of status would result in “an exodus, and not just American companies going elsewhere.”

“It’s bad news for Hong Kong as a financial center. Money goes where it’s safe,” he told CNN. “It will also be a signal for banks to be very, very careful about Hong Kong. They’ve worked very very hard to maintain the position they’re in, which is very precarious.”

“Watch and see what London does, watch and see what Tokyo does. It’s going to change and the victims will be the people of Hong Kong — Xi Jinping doesn’t suffer at all,” he said.

Stephen Orlins, president of the nonprofit National Committee on United States-China Relations, said ending the special status would be “catastrophic.”

“If we end Hong Kong’s separate status we hurt the people of Hong Kong more than it hurts the people of mainland China. It will devastate them. So the people who you try to protect, you are shooting,” he told CNN.

Pompeo said the decision on Hong Kong’s autonomy “gives (him) no pleasure,” noting that “Hong Kong and its dynamic, enterprising, and free people have flourished for decades as a bastion of liberty.”

“But sound policy making requires a recognition of reality,” he said. “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.”

Rep. Michael McCaul, the Texas Republican who chairs the China Task Force, said the decision was “regrettable, but the Chinese Communist Party left us no choice.”

Sen. Lindsey Graham, a South Carolina Republican and close ally of the President, called on the Senate to “act on bipartisan legislation sanctioning China for the destruction of Hong Kong’s democracy and freedom.”

Adds to tensions over pandemic

The decision comes as the rhetoric between Washington and Beijing has grown increasingly adversarial amid the coronavirus pandemic. The Trump administration has foisted blame on China for failing to be sufficiently transparent at the outset of the deadly virus.

Orlins said that the administration’s certification on Hong Kong fits in with the larger strategy of blaming China.

“The Trump campaign had decided to deflect action from its bungling of the coronavirus pandemic to blaming China. So a finding that the mainland government violated the ‘One Country, Two Systems’ model and therefore Hong Kong is not to benefit anymore from the separate tariff entity system would be perceived as bashing China and would fit into his reelection plan, but it is so terrible to the people of Hong Kong,” he told CNN.

Under the 1997 handover agreement between the UK and China, Hong Kong’s Basic Law was meant to ensure the territory’s high degree of autonomy, with an independent executive, legislative and judicial system and control over its financial system, human rights and freedoms. Beijing also promised that Hong Kong citizens could elect their own local government by 2017. But in the last two decades, China has taken steady steps to infringe on Hong Kong’s autonomy, culminating in the new proposed security law that bypasses the territory’s legislature.

Pompeo said in past weeks that he had delayed the required report to Congress on Hong Kong autonomy because the State Department was “closely watching what’s going on there.” He noted last week that “pro-democracy legislators were man-handled while trying to stop a procedural irregularity by pro-Beijing legislators. Leading Hong Kong activists like Martin Lee and Jimmy Lai were hauled into court.

“Actions like these make it more difficult to assess that Hong Kong remains highly autonomous from mainland China,” he said. The top US diplomat also repeatedly warned about the impact the national security legislation would have on the US assessment.

China has tried to enforce legal and psychological obedience in Hong Kong, pushing from 2012 for education to instill “patriotism” in Hong Kong’s children. In 2014, China issued a report asserting its authority over Hong Kong, sparking protests, and then moved to ban small pro-Hong Kong political parties and silence pro-independence voices. In 2015, Beijing began abducting independent booksellers who disappeared into China, sparking international outcry. In 2019, a proposed law allowing criminals to be extradited to China brought thousands of protestors into Hong Kong’s streets, afraid that the territory’s special status was being steadily corroded.