Critics think that Beijing has shattered this promise in recent years with a restrictive national security law and electoral reforms which allow only "patriots" to run for Hong Kong's leadership, BBC reported.
The 2020 law followed massive pro-democracy protests in 2019, which included violent clashes between demonstrators and police.
Now, observers say, there is a slim hope for a more democratic political system and they fear that the character of the city has fundamentally changed, with Beijing in full control.
"Most Hong Kong people think that 'one country, two systems' has already disappeared," says Ted Hui, a former pro-democracy lawmaker who has fled the city, BBC reported.
Authorities say the national security law affects a minority, but Hui says it stifles Hong Kong's once-vibrant civil society.
In its wake, dozens of groups, including political parties and unions, have disbanded. The annual candlelight vigil commemorating the 1989 Tiananmen Square massacre and the July 1 handover anniversary march have been effectively banned by authorities.
Several pro-democracy media outlets, including Apple Daily and Stand News, have closed down in the past year, BBC reported.
Hong Kong, once a beacon of press freedom in Asia, was ranked 148th in the world for press freedom this year, tumbling down nearly 70 places since the previous year.
And "the city of demonstrations" -- which has a long history of peaceful protest -- has fallen silent since the national security law took effect.
"It's fair to say that no large-scale, on-the-ground protests will occur in Hong Kong in the foreseeable future," said Jeffrey Ngo, a policy and research fellow of US-based Hong Kong Democracy Council, BBC reported.
"Beginning in 2020, you have people in Hong Kong who are either in jail and therefore can't do anything, or some who try to stay out of jail so they self-censor for good reason."
Another question is whether Hong Kong can maintain its status as a leading international financial hub.
In 1997, the "pearl of the Orient" was a wealthy city whose GDP was equivalent to almost one-fifth of China's. Now it's only about 2 per cent, and Hong Kong is facing intense competition from many other Chinese cities, especially Shanghai, BBC reported.
"Twenty-five years ago when China was much less developed than it is now, Hong Kong stood out as a very developed, internationally connected city," says Louis Kuijs, chief Asia Pacific economist of S&P Global Ratings.
"Many cities have caught up with Hong Kong economically."
Kuijs says the city is still "the pre-eminent gateway in and out of China" as it has an internationally recognised legal system and financial markets that are "very open to the rest of the world".
But recent tensions with Beijing and the strict zero Covid strategy have had many asking if the city is losing its appeal with international companies.
The number of regional headquarters of international firms in Hong Kong dropped by nearly 10 per cent from 2018 to 2021. But the number of mainland Chinese companies setting up shop in the city has gone up by nearly 28 per cent.
"The face of Hong Kong is evolving and it's probably becoming a little bit less international... and a bit more mainland-oriented," Kuijs says.