Hong Kong called off talks with protesting students yesterday, dealing a heavy blow to attempts to defuse a political crisis that has seen tens of thousands take to the streets to demand free elections and calling for leader Leung Chun-ying to resign.

The government’s decision came as democratic lawmakers demanded anti-graft officers investigate a $6.4 million business payout to Leung while in office, as the political fallout from mass protests in the Chinese-controlled city spreads.

“Students’ call for an expansion of an uncooperative movement has shaken the trust of the basis of our talks and it will be impossible to have a constructive dialogue,” Chief Secretary Carrie Lam said on the eve of the planned dialogue.

She blamed the pull-out on students’ unswerving demands for universal suffrage, which she said was not in accordance with the Asian financial centre’s mini-constitution, the Basic Law, and on what she described as their illegal occupation of parts of the city and fresh calls for people to rally.

Chief Secretary blames pull-out on students’ unswerving demands for universal suffrage

Student leaders accused the government of using petty excuses to derail the talks and called for more people to occupy the streets, after numbers fell significantly following mass rallies that saw police fire tear gas on the crowds.

“When university students are willing to sacrifice their lives for democracy and fight against the ruling powers, you must realise how sick and oppressive the government must be to force students to make this decision,” Alex Chow, leader of the Hong Kong Federation of Students, said after the government called off talks.

Hours earlier, Hong Kong’s Justice Department handed to prosecutors the investigation into the business payout to Leung by an Australian engineering company.

Part of the brief includes “considering and deciding whether prosecution action is warranted” against Leung, who has refused to stand down in recent weeks over protesters’ calls for Beijing to keep its promise of universal suffrage.

The department said its decision was aimed at avoiding “any possible perception of bias, partiality or improper influence”.

The campaign against the former property surveyor and son of a policeman has extended from the streets to the city’s legislative chambers, where democrats have threatened to veto major decisions and potentially cause policy paralysis.

Australia’s Fairfax Media reported this week that engineering firm UGL Ltd paid Leung a total of $6.4 million in 2012 and 2013 in relation to its acquisition of DTZ Holdings, a property consultant that employed Leung as its Asia Pacific director before he took office in July 2012.

Leung’s office denied any wrongdoing. DTZ was not immediately available to comment, while UGL said it was under no obligation to disclose the agreement.

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