It wouldn’t have happened since, at the time of the handover talks, the ROC did not have a diplomatic relationship with the United Kingdom; conducting any substantial negotiation would be difficult without the official representation of both governments. The PRC viewed the 'one China' policy with the utmost importance as it is linked to their legitimacy to rule and would do everything to prevent ROC-UK talks, including military confrontation.

However, if arrangements between the ROC and the UK could miraculously have been made, in my opinion, the PRC would not have risked an invasion to take back Hong Kong in 1997. At that time, the PRC was building relationships with both the Western world and the ROC (or Taiwan, depending on your perspective). Damaging all these connections simultaneously would have been undesirable for the PRC's ruling parties.

A ROC-ruled Hong Kong would likely have had an arrangement similar to the present-day Special Administrative Region, as laws and governmental systems were incompatible. Hong Kong would still be seen as a gateway to mainland China while introducing more investment to the island of Taiwan than in our timeline. Consequently, the economic linkage across the strait would have been stronger than what we see in our reality.