It really is a golden opportunity for China to rid itself of the worst offenders while obliterating the UK with its own BS.
China should immediately welcome the British position and request they extend that ‘welcome’ to all HK residents.
Furthermore it should immediately revoke all Chinese passports already issued to HK residents, but offer to re-issue new ones at no additional cost. But it need to extend its passport dual nationality checks currently in operation abroad to HK as well for the new replacement passports, whereby anyone who wishes to apply for a Chinese passport in HK must get formal, written confirmation from the British government that they are NOT a BNO passport holder.
Anyone who leaves HK using a BNO passport will automatically have their Chinese citizenship revoked. They will be treated as a British foreign national if they return, meaning they can return without needing a visa and stay for 180 days. But if they break any laws during their stay, they will be deported to the UK and be barred from entering HK again for a length of time proportional to the offence committed.
I like your ideal, but there are a couple of snags. One, BNO does not entitled to the holder a PERMANENT UK residency. (Despite noises coming out of Johnson and Rabbs.) It was all for show! They won't dare because of the xenophobic wing of their party.
So within a year, Hong Kong will be forced to take them back as they are Hong Kong ID holders, and without a country of origin.
Anyone leaving with BNO passport will have the same problem, just the recent debacle in Peru. When a few BNO passport holders resist assistant from China to fly them back to Hong Kong, because it is the UK's responsibility to do so. Notice the UK didn't offer to fly them to the UK.
So China can't just dump them at the Hong Kong airport just like Uganda did in the 1970s, and shamed Britain into sending planes over to collect all British passport holders. (Britain learned their lesson well)!
In order for your suggestion to work legally, it's call Britain's bluff. Called their promise of stronger actions and make these sad 300,000 FULL rights of abode. I'm not a gambling man, but I'll bet you my house that ain't NEVER going to happen!
@Lama
No! Britain is never going to be happy with that. Please read above.