China ordered the U.S. to close its consulate in the southwestern city of Chengdu, following through on retaliation threats after the Trump administration’s unprecedented decision to shut down the Chinese mission in Houston.

The Chinese Ministry of Foreign Affairs said Friday that the consulate’s closure was a “legitimate and necessary response to the unjustified act by the U.S.” The widely anticipated retaliation came hours ahead of the U.S.’s deadline for Chinese diplomats to vacate the Houston facility, which the State Department said had served as a hub for spying and influence operations.

Beijing’s decision will not only oust American diplomats from the capital of Sichuan province -- a region with a population rivaling Germany -- it will close a key listening post for developments in neighboring Tibet. The move will probably have a bigger impact than shutting the U.S. consulate in Wuhan, but less than closing U.S. missions in the key financial centers of Hong Kong or Shanghai.

Foreign Ministry spokesman Wang Wenbin told a regular news briefing in Beijing that some consulate staff had “engaged in activities inconsistent with their capacity, interfered in China’s internal affairs and harmed China’s national security interests.” By Friday afternoon, dozens of police, plainclothes officers and People’s Liberation Army personnel were seen patrolling the street outside the building, searching phones and ordering people to delete photos.

While police ordered most reporters and pedestrians to leave the area, China’s state broadcaster began live-streaming footage of the consulate’s entrance.

U.S. stocks fell for a second day amid the tensions, and spot gold topped US$1,900 an ource for the first time since 2011. China’s CSI 300 Index slumped 4.4 per cent at the close, while the ChiNext Index dropped 6.1 per cent, the most since Feb. 3.

“It’s not possible to carry out an entirely equivalent action, but choosing Chengdu shows China wants to reduce the harm made to bilateral relations,” said Wang Yiwei, a former Chinese diplomat and director of China’s Institute of International Affairs at Renmin University in Beijing. “The operations out of Chengdu are not the most high profile of the U.S. mission in China, compared to say Shanghai.”

In another potential sign of a deescalation, U.S. officials said a Chinese researcher wanted by law enforcement who had taken refuge in China’s San Francisco consulate was now in custody. The researcher, Juan Tang, is expected to have a court appearance on Friday, official said on a briefing call for reporters.

Yet the Chengdu and Houston consulate closures illustrate the alarming degree to which relations between the world’s two largest economies have worsened in recent years, as China assumes a more assertive posture on the world stage and the U.S. seeks to check its rise. President Donald Trump and his aides have stepped up attacks on China ahead of the U.S. election in November, accusing Beijing of spying, cybertheft and causing the coronavirus pandemic.

In a speech Thursday at the Richard Nixon Presidential Library and Museum, U.S. Secretary of State Michael Pompeo accused President Xi Jinping and the Chinese leadership of attempting to “tyrannize inside and outside China forever” in pursuit of global hegemony. “Securing our freedoms from the Chinese Communist Party is the mission of our time,” Pompeo said.

In the first U.S. reaction to the Chengdu decision, a spokesman for the National Security Council said the closure of the Houston consulate was justified after years of espionage activity.

“For years, the CCP has undertaken a whole-of-society effort to steal American technology and intellectual property for commercial gain, and many of these activities are directed from PRC diplomatic facilities,” NSC spokesman John Ullyot said in a statement Friday. “Our action to direct the closure of PRC Consulate General in Houston was taken to protect American intellectual property and Americans’ private information.”

A commentary published by China’s official Xinhua News Agency moments after the Chengdu announcement said the Chengdu closure was “aimed at a few extremist forces in the U.S. government, not the American people.” “The U.S. has stirred up trouble in bilateral relations to the point of hysteria,” the commentary said.

In a sign things could deteriorate further, Wang, the Foreign Ministry spokesman, answered a question on Thursday about the future of the U.S.-China trade deal by saying the American side should think “carefully” about where the relationship was heading. Trump said Thursday that his “phase one” deal means “much less” to him in the wake of the pandemic.

The Chengdu mission, which opened in 1985, covers Chongqing, Guizhou, Yunnan, as well as Sichuan. The consulate has also served as a key U.S. perch to follow events in Tibet, where Communist Party efforts to suppress dissent have long been a focus of tensions between China and the West.

In 2012, former Chongqing police chief Wang Lijun sought refuge in the Chengdu consulate with evidence linking the family of his then boss, former Chongqing party secretary Bo Xilai, to the death of a British businessman.

The episode exposed a scandal that would see Bo ousted and his wife convicted of murder, leading Xi to launch a nationwide anti-corruption campaign.

“They wanted to make it hurt a little bit more so they picked Chengdu,” said James Green, a former State Department official who is now a senior adviser for geopolitical consulting firm McLarty Associates. “What the Chinese care about more -- and what we care about more -- is what we do out of Chengdu, which is follow Tibet. And shutting that down kind of cuts our link to Tibet, which is a political blow to us.”

Global Times Editor-in-Chief Hu Xijin, who had earlier reported the timing of the decision on his Twitter feed, said U.S. diplomats were given the same 72-hour notice as their Chinese counterparts in Houston, meaning they must leave by Monday morning. The Wall Street Journal separately reported, citing unidentified people briefed on the matter, that China had given the affected diplomats 30 days to leave the country.

Wang Wenbin repeatedly sidestepped questions about when the diplomats would have to leave, saying only “we always talk about reciprocity in diplomacy.”

“The current situation in China-U.S. relations is not what China desires to see, and the U.S. is responsible for all this,” the Foreign Ministry said earlier Friday. “We once again urge the U.S. to immediately retract its wrong decision and create necessary conditions for bringing the bilateral relationship back on track.”

--With assistance from Sofia Horta e Costa, David Watkins, James Mayger, Josh Wingrove and Chris Strohm