He also called for better education for Hong Kong's children, apparently endorsing previous attempts to introduce "patriotic education" in the city that sparked mass protests in 2012.
Pro-democracy lawmaker Leung Kwok-hung, centre, is taken away by Hong Kong police officers after clashes with pro-China counter protesters blocking the way in Hong Kong onSaturday. Now, many assert that the opposite is true as Beijing steps up the pressure on the island.
There are growing fears that freedoms guaranteed by the handover deal are now under threat, with Chinese authorities accused of abductions and interfering in a range of areas, from politics to media and education.Xi cautioned that political conflict would "severely hinder" Hong Kong's economic and social development and called for education measures to promote China's national culture and history. Hon was born and grew up in Hong Kong, but at the office, he's finding more and more of his colleagues hail from mainland China.
As part of the handover, a mini-constitution known as the Basic Law promised that Hong Kong would retain a high degree of autonomy under a "one country, two systems" formula, with full democracy an "ultimate aim".
Since Hong Kong's return from British rule to the motherland, not only have Hong Kong emigrants returned from Canada, Australia and the United Kingdom, but it now has a strong inflow of expatriates, Leung said. "At the same time, there was a strong warning to the localists and the pro-independence people".
Ahead of Mr Xi's arrival, 26 pro-democracy activist were arrested and detained for trying to scale an iconic statue symbolising the take-over.
Lam also pledged to take firm legal action against those who "undermine" China's sovereignty, security and development interests. "I do not think we should entertain too many unnecessary fantasies right now". "If he doesn't give up it means there will be more problems".
Many Hong Kong residents, anxious about growing encroachment by Beijing as the financial hub marks 20 years since its return to China, are rushing to secure British passports as a safety net in the case of social unrest or the erosion of civil liberties.
In his words, China had made it "categorically clear" in talks with Britain in the 1980s that "sovereignty is not for negotiation".
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"China, Get Out of Hong Kong!" and "Independence for Hong Kong!" jostling with portraits of Nobel peace laureate Liu, was marred by scuffles with pro-Beijing groups and allegations of police violence.
Mr Xi said Hong Kong should crack down on moves towards "Hong Kong independence".
Pro-China protesters targeted a small march by activists in memory of the victims of Beijing's 1989 Tiananmen Square crackdown Saturday morning as officials gathered for the swearing in. She is Hong Kong's first female leader, reports Xinhua news agency.
Xi arrived in Hong Kong Thursday for a three-day trip to attend celebrations marking the 20th anniversary of Hong Kong's return to the motherland and the inaugural ceremony of the fifth-term government of the HKSAR.
But making the statue disappear, even temporarily, was a symbolically powerful act.
For Hong Kong, the focus is not whether the principle will change or not, but how to implement it comprehensively and accurately, Xi stressed.
After the Chinese and Hong Kong anthems were played, a squadron of fire boats sailed past, blasting water from their cannons.
"I feel as though I'm half a British citizen", said 30-year old Daisy Wong, who hopes to use her BN (O) status to secure British residency so her children can be born there.