Chinese President Xi Jinping and his wife Peng Liyuan arrive in Hong Kong, China, ahead of celebrations marking the city's handover from British to Chinese rule on June 29, 2017.

China is introducing a new system it says will improve the lives of people from Hong Kong, Macau and Taiwan — by allowing those who live, work or study in the mainland to obtain local residence permits.

But lurking in the details of the initiative is a warning: The status can be revoked through "harming national sovereignty, security, honor and interest." It is a stark reminder of the potential perils of life in the country for non-mainland Chinese.

It comes as analysts say China under President Xi Jinping is using a "carrot and stick" approach to further tighten links with the three regions through economic incentives and other inducements, while at the same time, driving home Beijing's position of power.

The clause on security "is a clear statement of a hardening attitude in China: If you want to make money from us, obey our rules (even the ones you don't agree with)," said Jonathan Sullivan, director of the China Policy Institute at the University of Nottingham.

"The qualifier is, as often in China, vague and open to interpretation, and could be used for any number of 'transgressions,'" he told CNBC in an email.

From September, people from the three locations can apply for the residence permits, the State Council, China's cabinet, announced last week.

Permit-holders can "enjoy public services and other conveniences similar to those of mainland residents" in areas such as employment, social security and legal services, the official Xinhua news agency said. The new permits will have the same 18-digit serial numbers as those used by mainland Chinese, Xinhua added.

Hong Kong Chief Executive Carrie Lam, the city's top official, welcomed the development.

"It fully reflects President Xi Jinping's people-centered development approach, as well as the central government's care and concern for the people of Hong Kong," she said in a press release on Aug. 16, when the regulation was announced.

Sullivan said he will be watching to see whether potential security violations would include activities that takes place outside China.

"For instance, would China monitor the social media of a Taiwanese card-holder while they are in Taiwan, and sanction transgressions," he said. While that may sound unlikely, it is already happening to celebrities and other public figures, he added.