By Enda Curran and Kathy Chu in Hong Kong and James T. Areddy in Shanghai 

Hong Kong has prospered as a financial and business center through both British and Chinese rule by being able to largely ignore politics and focus squarely on the bottom line.

Now, politics are coming to the fore as Beijing presses unpopular changes to local election laws that some business and political leaders say threaten to undermine the pillars that have made Hong Kong a commercial success at the doorstep of the world's second-biggest economy.

The central government in China decreed Sunday that it will effectively decide who can run for Hong Kong's top leadership post in 2017 by requiring candidates to be approved by a committee it also helps choose--the latest in a series of reminders to the southern semiautonomous territory that China is in charge.

The ruling has created a backlash in Hong Kong. On Monday, pro-democracy legislators heckled a top Chinese official as he sought to explain Beijing's position, while police used pepper spray to control protesters outside the venue.

In the coming weeks, democracy activists have threatened to shut down the city's main business district and boycott schools. For businesses that count on Hong Kong's stability, there is fear that Beijing would dispatch troops to quell any protest it deemed out of control.

Beijing has sought to quell fears about Hong Kong's future, saying its plan for the 2017 elections allows for the most democratic regime the city's 7.2 million residents have ever seen, after more than a century of British colonial rule. Until the 1997 handover, Hong Kong was led by a governor--often a career diplomat--appointed by the British government.

Hong Kong's legislature is deadlocked on the election issue. If the new election rules fail to get a two-thirds majority, the city will stick with its current system, in which the chief executive is chosen by a committee of pro-Beijing, pro-business delegates.

For China, Hong Kong has served as a showcase that Beijing can manage a free-market hub under the "one country, two systems" model. From the start, China has signaled its own anxiety that its rule could risk "killing the golden goose."

Businesses have long been attracted to Hong Kong's promise of access to the mainland market. That held true as China grew at a double-digit rate and largely kept out of the city's affairs. But Hong Kong's appeal could be diminished amid a sense of growing interference by Beijing in city affairs. Hong Kong also has some of the highest costs of living in the world.

Should such concerns grow, other Asian financial centers are eager to position themselves as an alternative. Tokyo, which has tried unsuccessfully for years to become Asia's financial hub, quickly seized on an opportunity to promote itself Monday.

"What has just happened isn't a single isolated incident," Tokyo Gov. Yoichi Masuzoe said, following a meeting to promote the city as a financial center. "True, English is understood there, but freedom is far more firmly guaranteed in Japan."

Singapore has long coveted Hong Kong's status, having drawn wealth-management business and executives with a pan-Asian focus. Some firms looking to start operations in Asia are now looking to Singapore as an alternative, said one executive, adding, "I haven't heard that on the agenda before."

On the other hand, many bankers on Monday played down the ruling on elections, saying that Beijing has little interest in upsetting a financial sector it relies on as a gateway for global capital for Chinese companies and investors.

"Investment bankers are opportunistic, flexible and savvy enough to know that to work in Hong Kong you have to play by China's rules," said Philippe Espinasse, a former investment banker in Hong Kong who now writes on the industry.

Traders took the news in stride, with Hong Kong's Hang Seng Index nudging a touch higher in Monday trade.

Hong Kong's legal community has been particularly concerned about mainland meddling. Last week, dozens of lawyers offered pro bono assistance to democracy activists. That followed a mass demonstration in June, when lawyers marched in protest of Beijing's declaration that Hong Kong's administrators--including its judges--must "love the country."

"Ultimately the legal system is pretty much answerable to Beijing, but they have chosen to allow Hong Kong to live in a bit of a bubble," said Nigel Davis, a lecturer of law at the University of Hong Kong. "It looks to me like that bubble could be burst."

Since China took over in 1997, the city's leader has been selected, around once every five years, by an election committee stacked with Beijing loyalists and members of the business community, in an arrangement to ensure that the winning candidate was palatable to China.

But now, Beijing is pushing the concept of "loving" China, calling it a prerequisite for anyone eligible to run Hong Kong. For a city that counts on legal code as its bedrock, ambiguous terms like "love" are sowing confusion.

"Under the principle of judicial independence, judges should not be pro- or anti- anyone or anything," wrote retired Hong Kong Chief Justice Andrew Li in a recent commentary in the South China Morning Post.

Beijing officials have blamed the uproar on misunderstandings related to translation.

There are also signs that businesses are coming under pressure from Beijing to distance themselves from democracy advocates.

The world's four largest accounting firms voiced concerns in a June ad in Hong Kong media about the prospect of protests that had threatened to paralyze Hong Kong's business district.

In the ad, the Hong Kong affiliates of Ernst & Young LLP, PricewaterhouseCoopers, Deloitte LLP and KPMG LLP said they worried investors may move away from the city, "shaking Hong Kong from its position as an international financial and commercial center."

A few days later, an ad that claimed to have been placed by employees of the so-called Big Four appeared in the Apple Daily newspaper, admonishing the companies by saying, "Hey boss, your statement doesn't represent us."

Also in June, Next Media Ltd., which owns the Apple Daily, said HSBC Holdings PLC and Standard Chartered PLC pulled millions of dollars in advertising from the newspaper, which is known for its criticism of Beijing. Representatives for the two banks have said the decision to halt ads was a purely commercial one, though Next Media said the move was prompted by pressure from the Chinese government. Beijing has declined to comment on the case.

Fears of a threat to Hong Kong's role as a trading center aren't new. Britain's decision in 1984 to cede the territory to China initially sparked high levels of anxiety, including in the business community, prompting a flood of foreign-passport applications. Yet by the 1997 handover, Hong Kong largely embraced the return to the motherland, led by investors whose early optimism helped them rack up big profits.

Since then, enormous prosperity has been created, but the mainland's money and people have also appeared to overwhelm the city, adding to crowding both in its subway and in its financial sector: Seven of the heaviest weightings in the Hang Seng Index of stocks that was once the bevy of local landlords and trading companies are now mainland companies.

In several instances, Beijing has appeared to protect the city's special position. When Hong Kong's economy was reeling in 2003 during the deadly SARS virus outbreak, Beijing rushed out an agreement that dropped trade barriers between Hong Kong and mainland China.

Still, pro-democracy leaders say the risks are significant.

"For members of the judiciary to have to be patriotic, this has serious implications for business," said Anson Chan, a former chief secretary in the Hong Kong government who founded a political group fighting for universal suffrage. "If it's one thing that the business community values, it's the rule of law."

Until the past few months, faith in the independence of Hong Kong's regulators had also been strong. Earlier this year, Hong Kong regulators effectively blocked e-commerce company Alibaba, one of China's great business success stories, from listing its shares in the city because of the way its corporate structure treats outside investors.

But in a development that raised eyebrows around its timing, Hong Kong's antigraft watchdog raided the home of Jimmy Lai, the founder of Next Media Ltd. and a staunch Beijing critic, in connection with his contributions to pro-democracy politicians. To some analysts, the raid suggested the commission--once unquestioned as an independent corruption fighter--was acting under political influence. Regulators said the move wasn't politically motivated.

Kosauku Narioka in Tokyo contributed to this article.

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