The territory kicked off July 1 with a flag-raising ceremony at the site of the historic change of sovereignty 10 years ago.
Hong Kong is celebrating with colorful parades, variety shows, and fireworks.
But alongside the grand government-organized celebrations, tens of thousands of Hong Kong residents are expected to march for democracy Sunday. As in the last four years, the protesters demand the right to directly elect their leaders.
In his speech Sunday, Chinese President Hu Jintao says democracy in Hong Kong is growing in an orderly way.
But he did not mention any timetable for universal suffrage.
Mr. Hu says the central government will remain committed to the principle of "one country, two systems" and a high degree of autonomy for Hong Kong. The "one country, two systems" arrangement lets Hong Kong keep its capitalist economy and Western-style courts and civil liberties. China's ruling Communist Party has say over the city's political structure. The city's top leader, the chief executive, is selected by about 800 voters approved by Beijing, and half the city's legislature is directly elected by the public. A new Hong Kong cabinet was also sworn in Sunday.
Hong Kong Chief Executive Donald Tsang says his government will be "more open" and more democratic". Tsang, who originally took office two years ago after his predecessor resigned, promised to introduce proposals on a democracy roadmap during his term.
He also promised to do more to address concerns of a growing income gap, worsening pollution and heritage preservation.
Until the handover to China in 1997, Britain ruled Hong Kong for 156 years.
Heda Bayron, VOA News, Hong Kong.
