By James Pomfret and Donny Kwok
HONG KONG (Reuters) - Hong Kong leader Leung Chun-ying warned pro-democracy protesters on Wednesday they risked "anarchy" as he sought to bolster his support in his first policy address since demonstrations rocked the financial hub last year.
Before Leung gave his annual speech, opposition lawmakers disrupted proceedings, calling on him to step down. Some held up banners demanding full democracy and then walked out of the legislature under yellow umbrellas - a symbol of the protests.
The session had be adjourned briefly as security guards hauled off two democratic lawmakers. About 70 pro-democracy protesters gathered outside the Legislative Council, along with dozens of Leung's supporters.
The policy blueprint has been a key platform for leaders in the Chinese-controlled city to hand out billions to the less-advantaged in the form of tax breaks, or to signal shifts in economic, property and political policies.
"As we pursue democracy, we should act in accordance with the law, or Hong Kong will degenerate into anarchy," Leung, dressed in a dark suit and sky-blue tie, told city legislators.
The former British colony returned to China in 1997 under a "one country, two systems" formula that gives it some autonomy from the mainland and a promise of eventual universal suffrage. Beijing has allowed a free vote for city leader in 2017, but insists on screening candidates.
Protesters demanding full democracy occupied parts of the city for more than two months late last year with Leung himself a target of their anger.
He must now try to boost his ratings among a population that knows that, under Beijing's watchful gaze, he is unable to offer anything significant in the way of democratic reform.
At the same time, he must perform a balancing act by healing divisions, maintaining strong ties with Communist Party rulers in China, on which Hong Kong's economy overwhelmingly depends, and ensuring that the city's economy - expected to grow about 2.2 percent this year - remains on a steady keel.
Leung reiterated that Beijing leaders had absolute authority over the city, and the screening of candidates for Hong Kong leader by a nominating committee stacked with Beijing loyalists was the only option. The opposition wants open nominations.
"Hong Kong autonomy under 'one country, two systems' is a high degree of autonomy, not an absolute autonomy," Leung said.
In a speech lacking major initiatives, Leung focused on bread-and-butter issues including housing - an important topic in the densely populated city of 7.2 million - and said he would seek to boost the supply of land in one of the world's costliest markets.
"Increasing and expediting land supply is the fundamental solution to resolve the land and housing problems," he said.
He gave no specifics amid speculation the government may seek to open up parks to limited development, which would likely infuriate environmentalists.
In a surprise move, the government scrapped a "Capital Investment Entrant Scheme" in place since 2003. The scheme had been seen as a back-door for affluent mainland Chinese to get Hong Kong residency and squirrel away their wealth.
At a time when China's economy remains vulnerable to a protracted slowdown, Hong Kong has struggled on many fronts given its growing ties with the mainland.
Initial public offerings, crucial to its financial sector and broader economic health, have dried up, including from China. The offshore yuan market has slowed markedly thanks to more offshore yuan hubs coming on stream.
Even financial services have seen torrid times as global institutions struggle. Standard Chartered Bank recently shut its global equities operations and laid off some Hong Kong staff.
Leung said Hong Kong would forge deeper ties with China's capital markets including the Shanghai-Hong Kong Stock Connect and further develop the offshore yuan market. Meanwhile, more foreign professionals would be lured by an across-the-board lowering of entry criterion.
The city government will earmark HK$1 billion to help Hong Kong firms tap the mainland market while about HK$5 billion will also be pumped into a fund to beef up the city's innovation and technology sector.
For the city's less well-off, Leung announced that the minimum wage was being raised from HK$30 an hour to HK$32.50.
($1 = 7.7549 Hong Kong dollars)
(Additional reporting by Yimou Lee; Editing by Robert Birsel)