By James Pomfret

HONG KONG (Reuters) - Hong Kong's Beijing-backed number two official Henry Tang stepped down from his post as chief secretary on Wednesday to pave the way for a widely expected bid to become the financial hub's next chief executive.

Tang said he'd tendered his resignation, which still requires approval from Beijing, and while he stopped short of confirming a formal run for the city's highest office, politicians and analysts are virtually certain he will do so.

"I know deep in my heart that this would be a great challenge for me," Tang told reporters. "I need to consider how to respond to the wishes and aspirations of our people."

A former textile tycoon and known as a wine connoisseur, Tang is seen as the frontrunner for the top job, having been groomed by senior Chinese officials to take over the reins of the former British colony from bow tie-sporting Donald Tsang.

Since reverting to Chinese rule in 1997, Hong Kong has played a largely economic mediation role as a capital-raising hub and major offshore yuan center for China. Politically, however, its moves toward full democracy make it a petri dish of reform for China's Communist Party leaders.

Tang, 59, is a wealthy "princeling" of Hong Kong's elite.

His father, Tang Hsiang-chien, a textile industrialist from Shanghai, was branded a rightist during Mao Zedong's Cultural Revolution but was later rehabilitated. He fostered close ties to former president and fellow Shanghainese Jiang Zemin.

Reportedly singled out by Jiang at an early age, Henry Tang was fast-tracked into the higher echelons of government in 2002, to gain valuable governance experience.

After stints as commerce and financial secretary, Tang was promoted to chief secretary in 2007, leading the civil service.

Despite Beijing's promise to grant Hong Kong full democracy as the "ultimate aim," the people of Hong Kong have no direct say in their next leader, who will be chosen next March by a 1,200-member election committee stacked with Beijing loyalists.

Complicating the political algebra this time round is a likely challenge from a second Beijing loyalist and prominent government advisor Leung Chun-ying, who is seen by some as a tougher and potentially more visionary leader than Tang.

"China favors Tang because he can handle the civil service but I think when the secret ballot comes I'm not sure who's going to win," said Allen Lee, a political pundit and former member of China's parliament or National People's Congress.

Dismissed by critics as a mediocre administrator, analysts say Tang still represents Beijing's best option for now.

"A great leader may not necessarily fit the conditions for chief executive. They want loyalty and trust. These are the most important things in the eyes of Beijing's leaders," said James Sung, a political analyst at Hong Kong's City University.


While Hong Kong's chief executives generally lack the influence of China's leaders, with a role perhaps more mayoral in scope, a poor leader can still stoke risks and unnerve China.

The first post-handover administration of Tung Chee-hwa -- a wooden, unpopular chief executive -- stoked deep resentment and a massive street protest in 2003 that analysts said caused Beijing to force him from office during his second term.

In Tang's favor, however, is solid support from the civil service and the business sector.

Tang -- who has a bachannalian streak and is well known for hosting lavish wine dinners with vintages drawn from extensive private cellars -- began as an industrialist, helping to run his father's textiles business, Peninsula Knitters Ltd, that made pioneering investments across China including a cashmere factory in the arid western region of Xinjiang.

Despite Tang's congenial and accommodating administrative style, his popularity ratings have plunged recently.

During an August visit by China's Vice-Premier Li Keqiang, a heavy security clampdown sparked claims of civil rights violations that Tang dismissed as "complete rubbish," sparking a vitriolic public and media backlash, while reinforcing perceptions he would be a yes-man for China.

Tang is married with four children and graduated from the University of Michigan with a Bachelor of Arts degree.

(Reporting by James Pomfret; Editing by Chris Lewis and Sanjeev Miglani)