By Tan Ee Lyn and James Pomfret
HONG KONG (Reuters) - Chinese President Hu Jintao on Sunday swore in Hong Kong's new leader who will have to confront challenges ranging from human rights to a push for democracy in the free-wheeling financial center after a year of transition and protest.
Security was tight at the same harbor-front venue where the British handed Hong Kong back to Communist Party-run China exactly 15 years ago, with hundreds of police forming a solid ring fence to ensure the isolated demonstrations were kept out of sight and earshot.
Hu expressed China's confidence in Hong Kong's role as a free, law-abiding society, though in a sign of Beijing's anxiety at recent tensions, he appealed for unity and called on the administration of Leung Chun-ying, who was sworn in for a five-year term, to heed "deep disagreements and problems" in the territory.
A lone protester stood and heckled Hu as he spoke, demanding an end to one-party rule and dictatorship in China, before being wrestled away by security personnel.
Outside the venue, masses of Hong Kong police and high barricades smothered all attempts by protesters to approach. Several demonstrators were taken away in a police van while a truck draped with black June 4 slogans denouncing Beijing's bloody crackdown on protesters in 1989 was forced away and tailed by a police motorcycle.
"Hong Kong has freedoms, and we have the right to protest! Why do you even stop us from walking?" lawmaker Lee Cheuk-yan shouted into a loud hailer as he harangued police blocking him and a handful of protesters.
Hong Kong is a liberal, global financial hub agitating for full democracy, making it both an asset and a potentially dangerous precedent for China where people are becoming increasingly intolerant of rights abuses and curtailed freedoms.
A far larger demonstration drawing tens of thousands was expected to hit the streets after the ceremony over a variety of issues including perceived China meddling in Hong Kong's affairs and slowing the city's moves towards full democracy.
Other issues angering the public include an illegal construction scandal that has badly hit Leung's integrity and popularity ratings, a yawning wealth gap, corruption and pollution - though Sunday's ceremony was held under a sunny blue sky.
Praised as one of the world's freest and simplest, low-tax havens for conducting business and a gateway to China, Hong Kong has nevertheless struggled over the past 15 years, with critics accusing Beijing of extensive behind-the-scenes meddling in academic, political, electoral, media and legal spheres.
This year saw a fraught, mud-slinging electoral race for the city's top job that was eventually won by Leung, who now faces a damaging scandal over illegal constructions in a luxury villa that has corroded public trust, an infraction that had earlier torpedoed the chances of his election rival, tycoon Henry Tang.
Hong Kong's wealth gap has also widened to its worst level since the handover -- while air pollution, high property prices, and anti-corruption probes into former and current senior officials' links to tycoons have stoked public frustration and tarnished the city's reputation for clean governance.
"Clearly there has developed an over-cozy, even incestuous relationship between top officials and big business," said Regina Ip, a lawmaker and former senior government official.
China again proffered a raft of economic goodies on Hong Kong to coincide with Hu's visit - it said it would experiment with service-sector reforms in a new business zone next door in Shenzhen's Qianhai as a "mini Hong Kong" to consolidate Hong Kong's economic prospects.
But public "negative" feelings towards the Chinese government are at a record high, according to a recent University of Hong Kong poll.
The gulf in freedoms between Hong Kong and China remains stark since the territory returned to Chinese rule, with some residents taken aback by images of Hu attending a military parade at a Hong Kong People's Liberation Army barracks on Friday as thousands of soldiers, assembled before tanks and defense hardware, hailed their leader.
During a visit to a cruise terminal construction site built on Hong Kong's old Kai Tak airport runway, Hu, in a hard-hat, was asked by a reporter to explain the June 4 killings.
"I hoped to ask him questions that Hong Kong people really want to ask," said Rex Hon, the reporter, who was interrogated by Hong Kong police officers for 15 minutes after his unscripted outburst. Hu ignored the question.
Mainland authorities also censored parts of CNN's broadcasts in China on the protests during Hu's visit that demanded a probe into the suspicious death in custody of dissident Li Wangyang, whose relatives accused officials in Hunan of murder.
Leung, 57, a Beijing-backed surveyor and son of a policeman, succeeds the bow-tie wearing Donald Tsang as chief executive but his popularity has been hit by the housing scandal and the closeness of his ties to Beijing.
Unlike Hong Kong's first post-1997 leader, Tung Chee-hwa, a shipping tycoon, and Tsang, a lifelong civil servant, Leung is a self-made millionaire who has championed grassroots causes such as poverty alleviation and building more public housing.
Leung, dressed in dark suit and red tie, said the road to his political ascendancy had been "humbling" and he welcomed scrutiny by the media and public during his term.
"I, and my governing team, will move closer towards the people, to narrow the gap between government and the public. We will closely listen to people's suggestions and opinions."
The opposition democrats, however, view Leung -- dubbed "the wolf" for his abrasive style -- with distrust and remain skeptical that he will act in Hong Kong's best interests, particularly in moving the city towards full democracy.
(Additional reporting by Venus Wu, Lee Chyen Yee, Sisi Tang and Bobby Yip; Editing by Nick Macfie)