it doesn't matter if you have APPLIED for an HKSAR passport, what matter is whether you are ELIGIBLE or not.
if you are eligible for an HKSAR passport, then you CANNOT apply for british citizenship.
you have an HKSAR passport, you CANNOT apply for british citizenship.
the idea of this law is that people living in places like hk, will not be stateless (not eligible for ANY other citizenship) if they cannot attain it where they have taken permanent residence.
ie> ethnic minorities who are NOT eligible for HKSAR passport, even though they were born here and are no longer eligible for passports from their "home" country ("home" in quotations because how can it be their home if they were born & raised here and have made HK their permanent home)... some countries allow you to "pass" your citizenship onto your children even if the children were not born in that country.
ex. my father was born in the UK. even though i've never stepped foot on UK soil, i have a full british passport and citizenship because my father was born there...HOWEVER, if i want MY children to have a UK passport, they MUST be born in the UK... i cannot pass MY uk citizenship onto my children if they are born outside of the UK...
IF this holds true for other nationalities, ie indians, pakistani, nepalese etc... some of whom have lived in hk for many generations, the children would NOT be eligible for their anscestral nationality because they were not born in the country.... they are also not eligible for HKSAR passports, they are not chinese (there are very few exceptions to this rule)... therefore, if they hold a BN(O) passport, THEY could "upgrade" it to full british passport, because without it, they would be "stateless"...
does that make more sense to you or am i confusing you more?