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Britain failed to enact democratic reforms well before the handover [0]. Chris Patton and successive British governments are partly to blame [1].

[0] - https://en.wikipedia.org/wiki/Young_Plan_(Hong_Kong)

[1] - https://www.theguardian.com/world/2017/jun/28/i-should-have-...

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You are right, that was probably the most significant path not taken, though at the time it probably wasn't attended to with 1997 in mind which is why it was left on the back burner. By the time sovereignty negotiations began in the 80s it was probably too late.

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