When the former Portuguese colony reverted to Chinese rule on December 20, 1999, Beijing promised that the city's "capitalist system and way of life" would remain unchanged for 50 years.

The city is now regarded by Beijing as a shining example of its "One Country, Two Systems" model -- in contrast with neighbouring Hong Kong, which was rocked by sometimes violent pro-democracy protests until a Beijing-imposed national security law in 2020.

Xi on Friday touted Macau's accomplishments under Chinese rule, including its international appeal and a per capita GDP that ranks among the world's highest.

"Macau's splendid achievements since its return to the motherland is proof to the world that 'One Country, Two Systems' has a clear systemic advantage and strong vitality," Xi said in a speech at the inauguration.

That framework "must be adhered to over the long term," he said.

Following its handover, Macau grew into the world's casino capital by gaming revenue and a popular destination for Chinese tourists.

But it is now under orders from Beijing to diversify its economy -- and the city's leaders have suggested industries such as financial services, technology and Chinese medicine as new sources of growth.

But as of November, gaming-related taxes still made up 81 percent of government revenue and experts say Macau is years away from weaning itself off casino wealth.

- New leader -

Anniversary celebrations kicked off Friday morning with a flag-raising ceremony at the city's Lotus Square, with incoming leader Sam Hou-fai, Macau government ministers and some visiting Chinese officials in attendance.

Sam served as president of Macau's apex court since handover and was the sole candidate in October's leadership race, receiving 99 percent of votes from a 400-person committee of Beijing loyalists.

The 62-year-old is Macau's first post-handover leader to be born on the mainland and not to have a background in business.

He replaces Ho Iat-seng, who took office in 2019 and spent much of his tenure managing Macau's response to the coronavirus pandemic and its economic fallout.

The Chinese president on Friday emphasised the need for a diversified economy as he laid out "four hopes" for Sam's administration.

Macau must "improve its planning for industrial development, and step up policy support and financial investment to cultivate internationally competitive new industries," Xi said.

He highlighted the importance of Hengqin Island, a landmass adjacent to Macau and three times its size, which was partly leased by Beijing to Macau to boost its land supply for non-gaming development.

"The central government decided to develop Hengqin with the goal of fostering Macau's development of a diversified economy and to facilitate the living and employment of Macau residents," Xi said.

"There can be no development of industries and projects that do not align with this positioning."

He also urged Macau to bring in talents to improve local governance, expand international ties and to "steadfastly uphold national security and Macau's stability".

Following the end of 442 years of Portuguese rule, Macau's fortunes have risen in lockstep with China's economic growth.

It is the only place in China where casino gambling is permitted and has long surpassed Las Vegas as the world's top casino hub, fuelled by two decades of Chinese visitor spending.

Macau, with a resident population of 687,000, saw just over 29 million visitor arrivals in the first 10 months of the year.

Its GDP has soared from $6.4 billion in 1999 to more than $47 billion last year, and its population is the richest in China on a per capita basis.