Chinese President Xi Jinping has warned that any challenge against Chinese sovereignty would not be tolerated, as he inaugurated Hong Kong's new government led by Mrs Carrie Lam, the first woman to lead the city.

Mrs Lam, 60, the city's No. 2 official before she was elected as Hong Kong Chief Executive, takes office at a time when relations between the city and Beijing are fraught.

At a ceremony to mark the 20th anniversary of the city's return to China from British colonial rule yesterday, the flags of Hong Kong and China were raised at Golden Bauhinia Square, next to the Hong Kong Convention and Exhibition Centre (HKCEC).

In his speech to more than 2,000 people, including top officials, inside the HKCEC, Mr Xi reminded Hong Kongers that China has sovereignty over their city.

But he also struck a conciliatory note to the city's moderate pro-democracy advocates, saying the central government was ready to talk to anyone holding different political views or position so long as the person "loves the country, loves Hong Kong and genuinely supports the principle of 'one country, two systems' and the Basic Law". The Basic Law is Hong Kong's mini-Constitution.

Still, he warned: "Any attempt to endanger national sovereignty and security, challenge the power of the central government and the authority of the Basic Law of the HKSAR (Hong Kong Special Administrative Region) or use Hong Kong to carry out infiltration and sabotage activities against the mainland is an act that crosses the red line, and is absolutely impermissible."

The warning has raised concern that this will put pressure on the Hong Kong government to enact an anti-subversion law, strongly opposed by Hong Kongers who see it as curtailing their freedoms.

Pan-democratic lawmakers expressed disappointment that the Chinese leader did not mention the resumption of stalled political reform, according to the nowNEWS channel.

In the speech, Mr Xi made clear that "one country" is the foundation on which the two separate systems of the mainland and Hong Kong are practised. China has a socialist system while Hong Kong maintains a capitalist system.

He likened "one country" to the roots of a tree.

"For a tree to grow tall and luxuriant, its roots must run deep and strong," he said.

"The concept of 'one country, two systems' was advanced, first and foremost, to realise and uphold national unity," he added.

He also said that both the Chinese Constitution and the city's Basic Law form the constitutional basis of the HKSAR.

The "one country, two systems" principle allows for Hong Kongers to govern themselves with a high degree of autonomy and to keep their capitalist system and way of life.

While acknowledging that in a plural society like Hong Kong's, it was natural to have different views and major differences on some issues, Mr Xi warned against politicising them or deliberately creating differences and provoking confrontation.

"Hong Kong cannot afford to be torn apart by reckless moves or internal rift amid the intense global competition," he said.

Mr Xi's three-day visit, which ended yesterday, for celebrations to mark the 20th anniversary of the handover saw the city cloaked in a massive security blanket and more than 20 protesters arrested.

Political analyst James Sung noted it is important to China that the "one country, two systems" model succeed so that Beijing can showcase it as a model to the world.

"In many ways, Hong Kong is a treasure to China," said Prof Sung.

In her speech as the new Chief Executive, Mrs Lam pledged a new style of governance to restore social harmony and public trust in the Hong Kong government while promoting deeper ties between the city and Beijing. But in a sign of how difficult a job Mrs Lam has in uniting a divided city, thousands of protesters took to the streets soon after she was sworn in, chanting "Reclaim Hong Kong".