To elaborate, it is a "special administrative region" of the PRC, governed by the "Basic Law" which is in effect until 2047.
The PRC has granted Hong Kong political and economic autonomy in most aspects of governance except in particular cases. Hong Kong is also able to form diplomatic ties and attend diplomatic functions independently of China in certain situations.
The actual attitude of Chinese and Hong Kong peoples regarding this arrangement is fascinating, however. At the slightest suggestion of Hong Kong being part of China, one Hongkongese friend of mine retorted back that "We are NOT part of China!" Of course, he knows that it is in a political sense, but the point is that there is a significant cultural gap. Not surprising given that it was ruled by the British for 100 years!
Needless to say, my Chinese friends whom I have mentioned this to do not share the same viewpoint =) about 7 years ago