This distinctive cultural identity as well as the de facto autonomy Hong Kong had acquired under the British were recognized and protected in the 1984 treaty between Britain and China that defined the terms of Hong Kong’s handover in 1997 and the territory’s status for 50 years after that. The 1984 Joint Declaration called for the creation of a Basic Law, a quasi-constitution, for Hong Kong. The Basic Law formalized the “one country-two systems” concept, and stated as an “ultimate aim,” “the selection of the Chief Executive by universal suffrage upon nomination by a broadly representative nominating committee in accordance with democratic procedures.”

Only the concept of “one country-two systems” is a misnomer and a transparent ploy. The P.R.C., though officially recognized as a country — with a seat at the United Nations, and even a veto on the Security Council — falls short of the designation. It has no democracy, constitutional rule in name only, and human rights protections that are not enforced. Its attempt to create a national republic with a unitary Chinese culture has gone off track. The P.R.C. as a nation is a concept more aspirational than organic: a political construct peddled by the Chinese Communist Party as a means of control and a claim to legitimacy. The P.R.C. is a party-state rather than a nation-state.

Hong Kong, for its part, has some of the trappings of statehood. It has its own passport, its own currency, its own monetary reserve, its own customs regime, its own legal system. Some international bodies, like the World Trade Organization, treat it as a member in its own right, separately from China. Even Beijing sometimes lapses into treating Hong Kong like another country: The investment law of mainland China deems Hong Kong investors to be foreign; in its annual statistics the Chinese government counts investment from Hong Kong as foreign.

Much like the city-states of the Hanseatic League during the Renaissance were building blocks in the formation of modern European states, the quasi-state that is Hong Kong today is best understood as a precursor of a Chinese confederation to come.

This idea is not as fanciful as it may sound. Hong Kong is the first regional government in the history of China to have gained a significant measure of autonomy through a contractual arrangement with Beijing: the Basic Law. And though that deal is not set to expire until 2047, Hong Kong and China will have to renegotiate it very soon. Hong Kong’s economic viability hinges on the stability and predictability of its investment climate, and many mortgages and other financial instruments have 30-year terms, meaning that their basic parameters have to be known by 2017 at the latest.

Beijing will not simply renew the Basic Law: The text’s 50-year term was meant as a probation. On the other hand, the Chinese government cannot just take over Hong Kong in 2047. In recent years, it has increasingly exercised a semi-clandestine form of control over Hong Kong’s top officials, capital, real estate, mainstream media and university administration. But it cannot go all the way and jeopardize Hong Kong’s reputation as an international financial hub that operates smoothly and under the rule of law.

Beijing resists granting Hong Kong more democratic freedoms today because, at bottom, it fears that would encourage Hong Kongers to demand complete autonomy one day. So rather than continue deadlocking over the question of democracy, better to address head-on the underlying sovereignty issue — and creating a formal Chinese confederation would relieve Beijing from worrying that it may eventually lose Hong Kong to independence.