The freedoms given to Hong Kong as a largely autonomous region helped make it a thriving center for international banking and finance. The new national security law is already creating uncertainty and greatly undermines the pillars with which the majority of Hong Kong’s status is based upon.
With China effectively choosing the nuclear option by taking direct control of the region, I can’t see any way in which Hong Kong will feasibly be able to continue acting as the international mediator of trade it has been for decades between Asia and the rest of the world.
My only guess as to why China would be willing to go so far seems to be that at this point, they’ve become resigned to having to largely give up on Hong Kong as a continued economic center. I think the final result will have to depend ultimately on whether the US chooses to revoke Hong Kong’s special status.
In a scenario where no sanctions are placed, it’s possible that Hong Kong might be able to come out of all this in one piece. Given the current trade tensions between the US and China, however, it seems unlikely that nothing will just happen.