on that issue, the policy of the chinese government was citizenship by descent. so if one of your parents is chinese by heritage, then you are automatically granted the chinese nationality. there was really nothing weird about this policy, because the situation with HK was unique. Most ex-colonies became completely independent and established their new country (hence nationality) when they break away from the UK but HK was returned to China as it was a lease. Simply put, in Beijing’s opinion, most of the non-Chinese inidividuals who reside in HK, no matter for how many generations already, were ultimately ‘imported’ by the British during their colonial rule, so if one was to now revert that colonial rule then it made sense not to grant nationality to such persons.
For the British there was no real problem to be honest because the number of stateless persons was so small anyway - had they felt that it was too many then perhaps they wouldn’t have had the additional British citizenship selection scheme for the Chinese HKers either.
the arrangement by the British for the non-Chinese residents in HK was an one-off arrangement. Unless you were directly affected at time of the handover in 1997, this route has been closed. This means that you cannot renounce your Chinese nationality retroactively and then apply for full British citizenship, because at the time of handover you were not a stateless person (as chinese nationality was granted to you automatically).