"Liu has only exercised his civil rights. He has not done anything wrong. He must be released," Nobel committee chairman Torbjorn Jagland said as the audience of more than 1,000 dignitaries, diplomats and officials -- including House Speaker Nancy Pelosi (D-Calif.) -- responded with sustained applause and a standing ovation.
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An oversize portrait of Liu, 54, had been hung on the stage. At the point in the ceremony where the honoree or a close relative would normally speak, Ullmann read from Liu's final statement before being sentenced to 11 years in jail for political incitement.
"I have once again been shoved into the dock by the enemy mentality of the regime," Liu said on Dec. 23, 2009. "But I still want to say to this regime, which is depriving me of my freedom, that I stand by [my] convictions. ... I have no enemies, and no hatred."
Hatred, Liu continued , "can rot away at a person's intelligence and conscience. Enemy mentality will poison the spirit of a nation, incite cruel mortal struggles, destroy a society's tolerance and humanity, and hinder a nation's progress toward freedom and democracy."
Before the ceremony, as attendees lined up outside city hall to enter, a police marching band performed Christmas carols, supporters handed out buttons emblazoned with an illustration of the laureate's smiling face and demonstrators across the street shouted "Free Liu Xiaobo!"
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About 100 Chinese dissidents in exile and some activists from Hong Kong attended the ceremony , broadcasts of which were blocked on television and Internet inside China.
In the country of 1.3 billion people, a few dozen pro-democracy activists staged China's sole authorized celebration, uncorking a bottle of champagne Friday outside a huge Hong Kong tower.
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Unlike mainland China and even nearby Macau, another former colony that is allowed more or less to run its own affairs, Hong Kong has a vibrant civil society and still regularly stages protests, albeit usually small, in defiance of Beijing.
Both the CNN and BBC television channels went blank in Beijing as the event began, and Chinese television news led programs with the latest economic figures and worries over inflation. Also, some text messages containing the words "Liu Xiaobo" and "Nobel prize" were being blocked from delivery.
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Meanwhile, police in Beijing maintained a heavy presence outside the apartment compound of Liu's wife, Liu Xia, who has had her telephone and Internet communications cut off for several weeks, since the announcement of the prize.
The government prohibited the Lius and their family members from leaving China to attend the ceremony, and barred other activists from traveling or even gathering at cafes or public places for fear that they would find a way to celebrate the occasion.
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Liu was jailed after authoring Charter '08, a pro-democracy manifesto that was published Dec. 10, 2008 and has since been signed by more than 10,000 people inside and outside China.
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"I regret that Mr. Liu and his wife were denied the opportunity to attend the ceremony that Michelle and I attended last year," Obama said, adding, "The values he espouses are universal, his struggle is peaceful, and he should be released as soon as possible."
Obama said Liu "reminds us that human dignity ... depends upon the advance of democracy, open society, and the rule of law."
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But in Beijing, the government continued to denounce the prize as a Western plot to destroy China. "We are firmly against attempts by any country or individual to use the Nobel Peace Prize to interfere in China's internal affairs and infringe on China's judicial sovereignty," foreign ministry spokeswoman Jiang Yu said in a statement. "...This political farce will in no way shake the resolve and confidence of the Chinese people."
The state-controlled China Daily newspaper led its Friday editions with a story headlined: "Most nations oppose peace prize to Liu."