The president of China, Hu Jintao, said political reform in Hong Kong must progress in a "gradual and orderly" way as thousands of people took to the streets to demand more democratic accountability.
During lavish ceremonies to mark the 10th anniversary of the handover of the former British colony to China, Mr Hu emphasised the need for more patriotism and loyalty to the mainland. "One country, two systems cannot be separated from each other," he said. "The one country means that we must uphold the power vested in the central government."
But his comments about democratic progress pave the way for the Hong Kong government to draw up plans for limited political reform.
In a swearing-in speech at the start of his second term, Donald Tsang, the chief executive of Hong Kong, promised to release guidelines this year that would identify the best form of universal suffrage for the territory.
He faces a difficult task of balancing the conservative instincts of the communist authorities in Beijing with the desire of the local population for change.
Polls suggest the vast majority of Hong Kong people would like full democracy immediately.
The chief executive is chosen by an 800-member commission hand-picked by Beijing, while voters elect only half of the 60 members of the legislative council, the territory's mini-parliament.
The annual democracy rally attracted at least 6,000 people, who marched through the city centre chanting, "One man, one vote", and carrying banners proclaiming, "Democracy is not a gift from Beijing".
The demonstrators included trade unionists, Philippine migrant workers, campaigners for asylum seekers, defenders of a public radio station and supporters of Falun Gong, a spiritual group that is outlawed on the mainland. The group said immigration officials turned back hundreds of followers who had tried to enter from Taiwan.