The visiting state leader was summarising the 'valuable experiences' learned over the past decade.

He highlighted four key points: the need for faithful implementation of 'one country, two systems', strict adherence to the Basic Law, economic development, and social stability.

'One country is the prerequisite of two systems. Without one country, there will be no two systems,' Mr Hu said. 'One country and two systems cannot be separated from each other. Still less should they be set against each other.'

Mr Hu described the 'one country, two systems' concept, and its successful implementation, as China's unique contribution to mankind's political development.

The president's address followed the swearing-in of Chief Executive Donald Tsang Yam-kuen and his new team for a five-year term at a ceremony at the Hong Kong Convention and Exhibition Centre in Wan Chai yesterday morning.

The ceremony, including Mr Hu's speech, was broadcast live across the country. It came as Hong Kong celebrated the handover with a series of government and non-official celebrations throughout the day.

Mr Hu left the city after officiating at the opening of the Western Corridor at about noon, two hours ahead of the democracy march, which has been held every July 1 since 2003.

Last night, 400,000 revellers crowded the harbourfront for a fireworks display. Earlier in the day, the PLA staged a spectacular parachuting show, while patriotic groups held a massive street parade across the heart of Hong Kong Island.

In his speech, Mr Hu stressed it was important to fully and faithfully appreciate and implement 'one country, two systems'.

'One country means we must uphold the power vested with the central government and China's sovereignty, unity and security,' he said.

'Two systems means we should ensure the high degree of autonomy of the Hong Kong SAR and support the chief executive and the SAR government in exercising government powers as mandated by law.

'Only when these two points are fully observed, can the strength of the one country, two systems policy be brought into play to the real benefit of the Hong Kong people.'

Mr Hu also said the supreme status of the Basic Law in Hong Kong's legal system must be upheld.

The provisions on Hong Kong's political system were in keeping with the conditions in Hong Kong. By observing the provisions, gradual and orderly development of the political system could be promoted, he said.

The president stressed that economic development and people's well-being must be given priority.

'Only with continued economic development can Hong Kong improve life for its people, maintain stability and develop a democratic system that suits its actual conditions.'

He also stressed the importance of social harmony and stability.

Speaking at the inauguration ceremony, Mr Tsang pledged to create a more open government and to develop a more democratic system. He said the next 10 years would be golden times for both Hong Kong and the country if the city could make the best of its own system to bring greater momentum for the development of both it and the nation.

Former secretary for justice Elsie Leung Oi-see, vice-chairwoman of the Basic Law Committee, said Mr Hu needed to give people a reminder on the Basic Law because some people in Hong Kong still did not properly understand it.

Former security chief Regina Ip Lau Suk-yee said: 'Some people in Hong Kong don't understand and have challenged the Basic Law and felt that having interpretations of the Basic Law is not a good thing. They don't understand that democracy under the Basic Law does not equal the democracy of an independent state.'

But former chief secretary Anson Chan Fang On-sang said: 'There is nobody in Hong Kong urging independence. We all accept that we are part of a country that is growing increasingly and economically stronger and has seen a degree of political liberalisation and, in the long run, has said China wishes to see democracy, too.'

Civic Party legislator Alan Leong Kah-kit said democracy and economic development could run hand in hand.

He added that the Basic Law also promised universal suffrage.