The brewing crisis of confidence led the Governor, Chris Patten, to convene a special session of the legislature yesterday to try and calm fears.
Furiously backpedalling to re-inject confidence in the scheme, Mr Patten told legislators that "the British government takes seriously its responsibility to all British nationals in Hong Kong, irrespective of how their British nationality was obtained and of whether they hold British nationality".
On Tuesday, Francis Cornish, the senior British diplomat in the colony, suggested that as the Chinese government regarded holders of British passports, granted under the scheme, as Chinese nationals, Britain would not be able to furnish consular protection.
The immediate furore generated by his remarks led the Hong Kong government to seek prompt action by the Foreign Office to give a public assurance that all holders of British passports would be given equal treatment.
Mr Patten went further yesterday, claiming that "Britain will not sit idly by if British nationals are in trouble". He reiterated the Foreign Office assurance that it was "for the British government, and the British government alone, to determine whether or not an individual holds British nationality".
While he was speaking in Hong Kong, the Chinese foreign ministry spokesman in Peking was insisting that China did not recognise the British nationality scheme and that, as far asPeking was concerned, those holding passports gained through the scheme would be treated as Chinese nationals.
This pointed statement made Mr Patten's task more difficult and he received a sceptical hearing from the legislators, some of whom accused Britain of issuing "second-class passports" to Hong Kong people.
Local media coverage of the fiasco has been near universally hostile, with most newspapers regarding Britain's response to uncertainty over the status of its passports as another indication of British duplicity.
The British Nationality Selection Scheme, devised in the aftermath of the 1989 Tiananmen Square massacre, was supposed to be a way of anchoring key jobholders in the colony by offering them the right to British citizenship as a sort of insurance policy if things became intolerable after the Chinese takeover.
The scheme was devised for 50,000 heads of household and their families. As a result, some 135,000 people have become eligible for British passports. Their names are supposed to be a closely guarded secret, so that such passport holders will not face reprisals by China.
However, there are fears that serious leaks have occurred. While the row over consular protection is under way, legislators are investigating the circumstances surrounding the sudden departure of Lawrence Leung, the head of the Immigration Department. There have been suggestions that this is linked to leaks of information to China.
The passport scheme, Hong Kong people were led to believe, would in the last resort allowthem to escape the clutches of a repressive Chinese regime. That understanding is now very much in doubt.Reuse content