(Reuters) - A member of China's central bank's advisory body warned on Wednesday that Beijing will punish Hong Kong if pro-democracy protests that have paralysed parts of the Chinese-controlled financial centre for a month are allowed to continue.

China could "punish" Hong Kong over protests, says ex-HK central bank chief

BY CLARE JIM

HONG KONG Wed Oct 29, 2014

Joseph Yam, executive vice president of advisory body China Society for Finance and Banking and a former Hong Kong central bank chief, said the city's financial integrity and stability of its currency were also at risk.

"Hong Kong's economic prosperity was built on its intermediary role between the mainland and overseas, especially in the financial realm," said Yam, who urged student protesters to return to their homes.

"(When) the intermediary is uncooperative, unreliable, trouble making, the mainland will for sure reduce reliance, make a fresh start at another place, have two strings to its bow and lessen preferential policies towards Hong Kong amid the economic reform process."

His warning came hours before China's top parliamentary advisory body expelled Hong Kong lawmaker James Tien Pei-chun for calling on the city's embattled chief executive, Leung Chun-ying, to step down. Tien said after the news that he would resign as leader of Hong Kong's Liberal Party.

Tens of thousands took to the streets at the height of the demonstrations to demand greater democracy in the former British colony, although their numbers have dwindled to hundreds in recent weeks, with tents scattered across the main protest site.

The protests were triggered by China's imposition of a highly restrictive framework for a city-wide vote for its next leader in 2017, which would only allow candidates pre-screened by a 1,200-strong committee stacked with Beijing loyalists.

The city's powerful tycoons had warned prior to the protests that demonstrations could threaten the city's financial stability, although they have remained largely silent since.

Yam's statement came as Hong Kong Secretary for Financial Services and the Treasury K.C. Chan told a Legislative Council session that the city's financial system had functioned normally during the protests.

"The linked exchange rate system is robust, interest rates remain steady, and there is no evidence of abnormal fund outflow," Chan said.

"As for the medium and long-term impact on Hong Kong's financial industry, we do not have sufficient data yet to make an accurate assessment. However, any prolonged protests would inevitably affect the confidence of local and overseas investors, which would in turn increase the potential risk to our financial market," he added.

Hong Kong returned to Chinese rule in 1997 under a "one country, two systems" formula that allows it wide-ranging autonomy and freedoms and specifies universal suffrage as an ultimate goal. But Communist Party rulers in Beijing are wary about copycat demands for democracy on the mainland eroding their grip on power.

China's ambassador to Brazil said the protests, which have broken out on both sides of the famous harbour, did not enjoy popular support and were "a farce that is doomed to failure".

China's Foreign Ministry published an interview Ambassador Li Jinzhang gave to the Brazilian newspaper, Folha de Sao Paulo.

"At this stage today, (we) have reached a point where there is no choice but to clear the places," Li was quoted as saying.