Hong Kong is a quasi-independent part of the Chinese Peoples Republic. Essentially, it is politically tied to China but is able to set its own laws and is significantly more capitalist than China.
The reason for this, and the similar status of Macau, is so CPR can attempt to entice the Republic of China (Taiwan/Chinese Taipei) government to surrender its independent status, with promises of semi-freedom. Obviously the ROC is not falling for this, but Hong Kong's curious status remains.