China desires to merge Hong Kong into the rest of mainland China, as a one state solution, in the long term. This means ending its status as a somewhat-democratic, relatively-free, relatively-free-market, rule-of-law based system.
China does not want to see any of this happen today, because mainland China is still developing. But theoretically, once China has developed, it would no longer need an independent and semi-free or semi-autonomous Hong Kong any longer, and Hong Kong could be merged into China with relatively little impact to China as a whole. Peacefully or otherwise.
The United States and the west generally do not want to see any of this occur, for reasons that should be painfully obvious.
So nothing about either China's actions towards Hong Kong, the people of Hong Kong's desires, or America's response here has anything to do with the freedoms of individual people today, China's current influence, or current laws proposed or being passed by any of the three participating societies.
Its about what everyone knows is going to be passed in a year, or 5, 10, or 40. The play from Hong Kong and the west is too draw out the unification period as long as possible, because you never know what could happen in the future. China feels the opposite.
This is happening now, because China has been pulling democratic governors out of Hong Kong legislative bodies by force. And because they are currently setting up a secret police network, legally, in Hong Kong, to enforce their power structure there, the same way it is done in mainland China. That means, that regardless of what "laws" Hong Kong passes, Hong Kong is no longer independent.
And America is responding that if China is going to rule Hong Kong as part of its mainland country, and abandon the rule of law that currently exists in Hong Kong, then America will no longer respect Hong Kong as a rule-of-law based, independent, society. Quite simply, it will no longer be safe for the west to invest money into Hong Kong, the way it has in the past.
This is both good self-preservation for the west, as well as making good on what, previously to today, was one a limited number of good reasons for China to respect Hong Kong's separate legal system and status. Theoretically, China could, tomorrow, roll back their pressure on Hong Kong, and America would roll back this announcement, though I rather doubt that either country is incentivized for that outcome.
As for your last two questions:
1 - Internal Chinese politics. I can't imagine you would ever get a correct answer about this on the internet. China does not work like the west. No one who understands it well is going to discuss it in a public forum (you understand why?), unless, possibly, you're talking about a western academic.
2 - Because she is legitimately a stooge, in the fundamental sense of the word. Its worth looking up Hong Kong's governmental structure. Its not a real democracy. Its more or less what you would expect a government to look like, if the wealthiest people in a country all knew each other, and the country wanted a democracy, but the wealthy wanted to ensure that they always held all the positions of power, with limited accountability. Hong Kong is only, really, democratic compared to China. There's a reason the protests were demanding universal elections... Hong Kong doesn't have them. So Hong Kong's government is just doing what it has been designed from the start to do: give the Hong Kong people some semblance of democracy, while simultaneously bowing to the most powerful people in the society, who are, increasingly, placed there by China.
