Hong Kong constitutes a critical economic gateway between the mainland and the outside world. But China's stake is also political. Hong Kong represents another step on the path of reunification. The leadership in Beijing wants to do nothing that would set back efforts to gain Taiwan. China also is likely to act with restraint because of its larger need for good relations with the world.
China needs a prolonged period of stability so that it can continue to focus on economic growth.
They are already reigning in political freedoms. President Jiang Zemin and those around him are worried lest too much freedom in Hong Kong encourage people on the mainland to follow suit. What this will mean in reality is the rolling back of certain of the reforms introduced by Chris Patten, the last British Governor. For Hong Kong's residents, the changes will mean some loss in political freedom. Still, they will be better off than they were for all but the last few years of British rule when some democratic reforms were introduced.