HI Johnny,
I am in the same situation as yours. I have looked and looked at many different websites and sources and found:
PRC do not accept dual nationality, so you are only eligible to apply for the Travel Document if you do not declare yourself as American on the applicaton. Thus, you are only applying the Travel Document with your HK SAR permanent citizen ID and HK SAR passport declaring yourself as China nationality. On the flip side, you are also breaking US law, as US does not allow dual citizenship with China neither.
If you want the diplomatic protection from US and be treated as an American, without breaking neither PRC nor US laws, then you should apply for a Visitor visa every time you travel to China and enter China with your US passport.
You can also apply for a Home Return Permit while you are in HK, but that is more hassle, because you have wait 12 days before you can go to China. Yet, even with this Permit, you are declaring yourself as Hong Kong born/China citizen by having that Permit.
Another things is although you are US citizen and US as your Nationality, you never will lose your rights as Permanent Resident in HK, because you were born there, unless you go to the HK Immig D or Consulate to declare the abandonment of your Chinese nationality.