By Donny Kwok and Irene Jay Liu
HONG KONG, Oct 1 (Reuters) - Thousands of pro-democracy protesters thronged the streets of Hong Kong on Wednesday, some of them jeering National Day celebrations, and students threatened to ramp up demonstrations if the city's pro-Beijing leader did not step down.
There was little sign of momentum flagging on the fifth day of the "Occupy Central" protest, whose aim has been to occupy sections of the city, including around the Central financial district, in anger at a Chinese decision to limit voters' choices in a 2017 leadership election.
Many had feared police would use force to move crowds before Wednesday's celebrations marking the anniversary of the foundation of the People's Republic of China in 1949. Those fears proved unfounded, and police stayed in the background.
The crowds have brought large sections of the Asian financial hub to a standstill, disrupting businesses from banks to jewelers. There were no reports of trouble on Wednesday, but witnesses said the number of protesters swelled in the evening.
Pro-democracy demonstrators near the Government Complex in Hong Kong on Oct. 1, 2014. (Thomas Campean/Anadolu Agency/Getty Images)
Hong Kong student leader Lester Shum issued an ultimatum to the city's leader Leung Chun-ying: step down or else face wider protests.
"We will escalate the action if CY Leung doesn't resign by tonight or tomorrow night. We will occupy more government facilities and offices," he told reporters, without elaborating.
"I believe the government is trying to buy more time. They want to use tactics such as sending some people to create chaos so that they would have a good reason to disperse the crowd."
Riot police had used tear gas, pepper spray and baton charges at the weekend to try to quell the unrest, but tensions have eased since then as both sides appeared ready to wait it out, at least for now.
The protests are the worst in Hong Kong since China resumed its rule of the former British colony in 1997. They pose one of the biggest political challenges for Beijing since it violently crushed pro-democracy protests in Tiananmen Square in 1989.
A protester waves her cell phone in the air outside the Hong Kong Government Complex on Oct. 1, 2014 in Hong Kong. (Chris McGrath/Getty Images)
A government source with ties to the chief executive said Leung and his advisers planned to soften their approach.
"It may take a week or a month, we don't know. Unless there's some chaotic situation, we won't send in riot police ... we hope this doesn't happen," the source said.
China has dismissed the protests as illegal, but in a worrying sign for the Communist Party leadership in Beijing, the pro-democracy protests have spread to neighboring Macau and Taiwan.
Police officers stand guard at the Government Complex in Hong Kong on Oct. 1, 2014.(Thomas Campean/Anadolu Agency/Getty Images)
On Wednesday, the Hong Kong demonstrations moved into Tsim Sha Tsui, a shopping area popular with mainland Chinese visitors. It would normally be doing roaring trade during the annual National Day holiday.
Underlining nervousness among some activists that provocation on National Day could spark violence, protest leaders urged crowds not to disturb the flag-raising ceremony on the Victoria Harbor waterfront.
The event went ahead peacefully, although scores of students who ringed the ceremony at Bauhinia Square booed as the national anthem was played.
A beaming Leung shook hands with supporters waving the Chinese flag, even as protesters who want him to stand down chanted: "We want real democracy."
"We hope that all sectors of the community will work with the government in a peaceful, lawful, rational and pragmatic manner ... and make a big step forward in our constitutional development," Leung said in a speech.
The Hong Kong and Chinese flags billowed in the wind at the completion of the ceremony, but one of the main protest groups said they marked the occasion "with a heavy heart."
A demonstrator sits under an umbrella on Canton Road in the area of Tsim Sha Tsui in Hong Kong, on Oct. 1, 2014. (Lam Yik Fei/Bloomberg via Getty Images)
Cracking down too hard could shake confidence in market-driven Hong Kong, which has a separate legal system from the rest of China. Not reacting firmly enough, however, could embolden dissidents on the mainland.
China rules Hong Kong under a "one country, two systems" formula that accords it some autonomy and freedoms not enjoyed in mainland China, with universal suffrage an eventual goal.
However, protesters reacted angrily when Beijing decreed on Aug. 31 that it would vet candidates wishing to run for Hong Kong's leadership.
Leung has said Beijing would not back down in the face of protests and that Hong Kong police would be able to maintain security without help from People's Liberation Army troops from the mainland.
Protesters have dug in, setting up supply stations with water bottles, fruit, disposable raincoats, towels, goggles, face masks, crackers and tents.
People use their smartphones to film the balloons released near Tiananmen Gate after the flag raising ceremony on the National Day in Beijing Oct. 1, 2014. (AP Photo/Andy Wong)
In contrast to National Day celebrations in Hong Kong, hundreds of people attended a tightly choreographed flag-raising ceremony in Tiananmen Square in Beijing. The daily event was typically austere, with goose stepping troops and a brass band.
Communist Party leaders in Beijing worry that calls for democracy could spread to the mainland, and have been aggressively censoring news and social media comments about the Hong Kong demonstrations.
A strongly worded editorial in the People's Daily, the Communist Party mouthpiece, attacked the Occupy Central protests as being confrontational.
"And now, a handful of people are bent on confronting the law and stirring up trouble. (They) will eventually suffer the consequences of their actions," it said on Wednesday.
Rights groups said that a number of mainland activists supporting the Hong Kong protests had been detained or intimidated by police on the mainland.
The turmoil has hit the share market, with the city's benchmark index registering a 7.3 percent fall over the past month. Markets are closed on Wednesday and Thursday for the holiday.
Some banks and other financial firms have begun moving staff to back-up premises on the outskirts of the city to prevent growing unrest in the financial hub from disrupting trading and other critical functions, two business services firms said.
Mainland Chinese visiting Hong Kong had differing views on the demonstrations.
"For the first time in my life, I feel close to politics," said a 29-year-old tourist from Beijing surnamed Yu. "I believe something like this will happen in China one day."
But a woman surnamed Lin, from the southern Chinese city of Shenzhen, said the protesters' demands for a democratic election were "disrespectful to the mainland."
"Even though the government has brought a lot of development to Hong Kong, they don't acknowledge this," Lin said.
A demonstrator holds a slogan to support pro-democracy protests taking place in Hong Kong at Liberty Square in Taipei, Taiwan, Oct. 1, 2014. (AP Photo/Chiang Ying-ying)
In Taipei's Liberty Square, some 2,000 mostly young protesters, many wearing symbolic yellow ribbons in a show of solidarity, encouraged Hong Kong people to fight for democracy.
The Hong Kong protests have been watched closely in Taiwan, which has full democracy but is considered by Beijing as a renegade province that must one day be reunited with the mainland.
Taiwan President Ma Ying-jeou has said Beijing needed "to listen carefully to the demands of the Hong Kong people."
In the former Portuguese colony of Macau, which like Hong Kong is now a Chinese "special administrative region," a similar movement has called for changes in the way the gambling hub chooses its leader. (Additional reporting by Farah Master, Diana Chan, Twinnie Siu, Yimou Lee, Kinling Lo, Charlie Zhu, James Pomfret, John Ruwitch, Clare Baldwin, Diana Chan and Anne Marie Roantree in HONG KONGSui-Lee Wee in BEIJING and Michael Gold in TAIPEI; Writing by Paul Tait and Jeremy Laurence; Editing by Mike Collett-White)