1) Not even just technically, it's totally within the rules. China see HKG-PVG-MFM for 144 hours transit and MFM-PVG-HKG for 24 hours transit.
2) I'm sure once you explained the nested trip, Cathay would be fine. It could take some time for them to understand, so be at checkin early.
3) Korea (especially Jeju), Japan, Taiwan might also work with a similar flight time. $200 isn't a bad price though.
4) Ultimately the only way you'll figure out Cathay's response is to ask.