(Bloomberg) —

Hong Kong faced a new reality on Wednesday as China began enforcing a sweeping security law that could reshape the financial hub’s character 23 years after Beijing took control of the former British colony.

The new law’s provisions went beyond what many investors, democracy advocates and even pro-Beijing politicians expected, prompting warnings it would have a chilling effect on free speech and political activities related to Hong Kong. Leaders in Beijing and Hong Kong did nothing to allay those worries during briefings to explain the 35-page law which was first unveiled as it came into effect late Tuesday, even as thousands hit the streets in defiance.

“The law is a ‘sword of Damocles’ hanging above extremely few criminals who are severely endangering national security,” Zhang Xiaoming, the deputy director of the Hong Kong and Macau Affairs Office, told reporters Wednesday in Beijing. “The law will deter foreign forces who try to interfere with Hong Kong affairs. The law is a turning point to put Hong Kong back on its track.”

The law’s vague language generated confusion about what activities were allowed, adding uncertainty for some businesses that have operations in Hong Kong in part because of its independent British-inspired legal system. While some investors said the measure would bring stability following sometimes-violent protests last year, others expected to see a flight of capital and talent. Markets were closed for a public holiday.

The Trump administration has vowed additional “strong actions” if Beijing didn’t reverse course, potentially inflicting more damage on a city facing its deepest recession on record with unemployment at a 15-year high. The U.S. House of Representatives passed by unanimous consent a bill imposing sanctions on banks that do business with Chinese officials involved with eroding the city’s autonomy, following a similar Senate bill passed last week. It could head to President Donald Trump’s desk on Thursday.

The U.K. accused Beijing of going back on its promise in a 1984 treaty to preserve Hong Kong’s “high degree of autonomy” and on Wednesday opened a path for 40% of the city’s residents to obtain citizenship.

“The feeling is that, all of a sudden, the ‘one country, two systems’ arrangement has disappeared and Hong Kong is truly just another part of China,” said Charles Mok, a member of Hong Kong’s Legislative Council who represents the information technology industry. “It’s ironic that passing this national security law may make the international community feel that Hong Kong is less secure.”

First Arrests

Police on Wednesday quickly detailed their first 10 arrests under the law out of about 370 people taken into custody. Officers used tear gas, water cannons and pepper spray balls to quell protests that erupted downtown, where demonstrators carrying umbrellas and American flags clashed with officers. Hong Kong’s government said those accused of violating the new law carried materials with the words “Hong Kong independence.”

Chief Executive Carrie Lam’s administration condemned attempts to “publicly challenge the bottom line” of the central and Hong Kong governments, according to a statement released early Thursday.

Prominent activists, including former student leaders Joshua Wong, joined the protests even while cutting ties with political groups Tuesday in an apparent attempt to avoid implicating each other. Pro-democracy lawmakers have expressed concern the law will be used to bar them from seeking office in a legislative election in September.

“We don’t know if there will be any more opportunities for us to go on the streets for the same cause,” said a 31-year-old freelancer who gave his name as Law. “Maybe we won’t be able to protest ever again for the rest of our lives.”

The legislation passed by lawmakers in China and signed by President Xi Jinping allows for potential life sentences for crimes including subversion of state power and collusion with foreign forces. It extends to actions committed by anyone, whether or not they are Hong Kong residents, anywhere in the world and appears to cover even non-violent tactics employed by protesters in a wave of unrest that gripped the former British colony last year.

Police Make First Arrest Under Security Law: Hong Kong Update

For instance, Zhang said that those who travel overseas to seek sanctions against China could be prosecuted under the collusion provision. He also said people who spread “malicious rumors,” such as allegations that riot police killed passengers during a controversial sweep of a train station in August, could be liable under provisions against “provoking hatred” against the government.

In a speech to mark the anniversary, Lam called it the “most important development” in relations between Hong Kong and China’s central government since the city’s handover. Later during a 70-minute press briefing, she and members of her team provided little clarity on what would be considered an offense under the law.

“I want to emphasize, the maximum penalty of principle offenders of the four crimes is life imprisonment, so don’t challenge the law,” said John Lee, Hong Kong’s security secretary. “Please do not try to test our bottom line.”

Trump warned last month that if Beijing didn’t back down the U.S. would start rolling back Hong Kong’s preferential trade status, while the U.K. and Taiwan have offered new paths to residency for the city’s inhabitants.

“We made clear Mr. Speaker that if China continued down this path we would introduce a new route for those with British National Overseas status to enter the U.K., granting them limited leave to remain, with the ability to live and work in the U.K. and thereafter to apply for citizenship,” Prime Minister Boris Johnson told Parliament on Wednesday. “And that is precisely what we will do now.”

This week the Trump administration made it harder to export sensitive American technology to Hong Kong, and lawmakers are considering easing the rules for residents to enter the U.S. as refugees. Secretary of State Michael Pompeo said the U.S. is issuing a business advisory to companies with supply chain links to China’s western Xinjiang province, where authorities have forcibly detained Muslim Uighurs.

“A free Hong Kong was one of the world’s most stable, prosperous and dynamic cities,” Pompeo told reporters in Washington on Wednesday. “Now it will be just another communist-run city where its people will be subject to the party elite’s whims. It’s sad.”

China didn’t publish the full draft law before its passage or allow a public debate, which is required under the Basic Law, Hong Kong’s mini-constitution. The process also bypassed Hong Kong’s elected Legislative Council, and Lam said earlier she hadn’t seen a draft of the law.

“Laws that would have fundamental differences to our way of life have been passed thousands of miles away by people we know nothing about, with contents of this legislation which we know nothing about,” pro-democracy lawmaker Dennis Kwok said on Tuesday. “That’s no way to treat a civilized, educated international city such as Hong Kong, but this is it. The way they’ve done it is the most ruthless, undignified assault on the freedom, human rights and the rule of law of Hong Kong.”

(Updates with latest Hong Kong statements from seventh paragraph)

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