Yes, it is very common to use exaggerations in Chinese and when a certain exaggeration is widely accepted, its figurative meaning took over its literal character-by-character meaning. So when the idiom is used, the four characters are interpreted as one word that describes its figurative meaning.
Let me give you an example: in ancient Chinese it is a standard greeting to wish the emperor to live ten thousand years, literally. But everyone understands that it just means very long life.
You're right in that there is an undertone of brutality, even as the Mandarin Chinese phrase is used figuratively. But keep in mind that the intended audience is Chinese people. This phrase is very commonly used when talking about Chinese army defending against Japanese invasion during WWII and crushing enemy to death. I feel it is intentional that the government would like its people to consider the protesters as enemies to the Chinese nation.
Moving capital to HK from mainland is largely subject to the same rules and regulations as moving capital to a foreign country. The reason Chinese money is parked here is because HK offers a convenient way for mainland assets to be listed. Without HK, these assets can be listed elsewhere e.g. US or UK.
In this sense, the existence of HK as an international finance center brings money closer to mainland rather than further away.
I predict that more likely the protests will subside over time without military intervention from the mainland.
In Macau, another Chinese city under One Country Two Systems, people are generally very happy with the present political arrangement. Macau has an advanced economy with one of the highest GDP per capita in the world today. It is also a free and democratic society.
Both economically and politically, China prefers HK to be like Macau at a larger scale (HK has over 10x population). The current situation seems to be necessary pains of growing up.
Native Mandarin speaker here. All three separate allusions are a single attempt to translate the four-character Chinese idiom of 粉身碎骨, which is a figurative way of saying crushed to death. In this context, the meaning is the attempts to split China will be completely defeated and offenders subject to severe punishment.
Let me give you an example: in ancient Chinese it is a standard greeting to wish the emperor to live ten thousand years, literally. But everyone understands that it just means very long life.