Financial industry representatives have urged the Government to end the crisis quickly or risk further undermining international investor confidence.
They said the row was the latest in a string of problems for the Government, giving the business community the impression autonomy was being eroded.
Speaking after an Asia Society luncheon, Morgan Stanley managing director Peter Churchouse said: 'This has the potential to be a very big issue and concerns the whole question of Hong Kong's security as a financial centre in the long term.' Mr Churchouse said it was imperative the Government offered reassurance the rule of law was intact and the Basic Law would be defended.
'If the perception is that the Basic Law can be trampled on, then that will be very negative for the market. I encourage [the Government] to resolve this very quickly. If it drags out it will be very negative for Hong Kong's role as an international financial centre.' Fellow financial professionals said the Government had to alter the perception internationally that legal autonomy was being undermined.
They said the latest row compounded controversy generated by the Government's decision not to prosecute Sally Aw Sian over the Hong Kong Standard circulation fraud.
Deutsche Morgan Grenfell regional strategist Pauline Gately said: 'Is this another test of the legal framework? Is Hong Kong totally independent from a legal perspective? 'The sceptics will no doubt be poring over this. There is already negative sentiment in the investment community respecting Hong Kong and China on the economic side, but this adds a political dimension.' The Government was criticised for its decision to intervene in the stock and futures markets in August last year, a move interpreted as an end to its policy of positive non-intervention.