By Venus Wu and Greg Torode
HONG KONG (Reuters) - Developments in Hong Kong have affected confidence in a system of government intended to ensure the Chinese-ruled city's autonomy, though its rule of law remained robust "despite challenges", former colonial power Britain said on Friday.
Britain handed Hong Kong back to China in 1997 with guarantees it would retain extensive autonomy, an independent legal system and broad personal and commercial freedoms under a deal known as "one country, two systems".
The international financial hub has seen tumultuous times over the past couple of years, with pro-democracy protests quelled in what many residents see as creeping interference by Beijing and the rise of a small but vocal movement pushing for independence.
Britain monitors developments in Hong Kong, as the agreement it struck with China for the territory's return stipulated the continuation of its capitalist way of life for 50 years.
In its latest report to its parliament, covering the six months to the end of last year, the British government said the formula setting out how the city is ruled "continued to function well in the vast majority of areas".
"Nevertheless, during the reporting period a number of developments caused concern in Hong Kong and internationally, affecting confidence in 'one country, two systems,'" it said.
"We believe that, despite challenges, Hong Kong's rule of law remains robust overall, thanks in large part to a world-class, independent judiciary," it added.
Late last year thousands of lawyers marched through the heart of Hong Kong to condemn legal intervention by Beijing that effectively barred two elected pro-independence lawmakers from taking their seats in the city's legislature.
The intervention fueled concern about the independence of the city's judiciary.
China rejects outright any talk of independence and Britain reaffirmed in its report that it did not see independence as an option for the city.
Britain urged both the Chinese and Hong Kong governments, as well as elected Hong Kong politicians, to take steps to maintain confidence in "one country, two systems", which Foreign Secretary Boris Johnson called "the best system for Hong Kong's long-term future".
While the city's capitalist ways are guaranteed for 50 years, no specific time frame has been agreed for the "one country, two systems" formula.
But Johnson said he was "encouraged" by indications from Hong Kong authorities that the arrangement would not cease in 2047.
Hong Kong's government, which is close to Beijing, said the formula was implemented fully and successfully, and outsiders should stay out of Hong Kong's affairs.
"Foreign governments should not interfere in any form," it said.
China's Foreign Ministry said Hong Kong was an internal matter that no country had a right to interfere in, and that it opposed these regular reports from Britain.
"We demand the British side stop issuing these reports, and stop interfering in Hong Kong's affairs," it said in a statement late on Friday.
Britain also reiterated concern over the case of five Hong Kong booksellers who published material critical of Beijing and disappeared in late 2015 to re-emerge in Chinese custody months later. Four have been released but one remains in detention.
(Additional reporting by Ben Blanchard in Beijing; Editing by Robert Birsel and Kim Coghill)