* Chaotic clashes around Hong Kong
* Police use tear gas, deny using excessive force
* 'Hong Kong has become a police state. We should resist'
* Protesters erect 'Lady Liberty' statue on Lion Rock peak
* Asian financial hub faces first recession in a decade (Adds latest on protests, fresh quotes)
By Jessie Pang
HONG KONG, Oct 13 (Reuters) - Hong Kong pro-democracy activists and riot police clashed in chaotic scenes around the city on Sunday with police in full riot gear chasing protesters through crowds of horrified lunchtime shoppers.
Several rallies in shopping mall started peacefully around midday with a few hundred people at each chanting slogans such as "Free Hong Kong", but by late afternoon hardcore black-clad activists trashed shops and metro stations and erected road blocks around the city.
Police made numerous arrests and deployed tear gas to disperse protesters, saying they used "minimum force". Television footage showed shoppers screaming and some injured when police charged inside a mall.
The young protesters, many wearing face masks to shield their identity, were often supported by shoppers.
In one mall a group of riot police, shields out front and pepper spray canisters in, hand were forced to retreat backwards by chanting shoppers until they were outside of the mall.
In another incident, a group of 50 shoppers inside a mall faced off against riot police outside, chanting "Hong Kong police mafia". The shoppers cheered when police drove off.
Hong Kong's police, once praised as "Asia's finest", have been accused of using excessive force in dealing with protesters and have lost the confidence and respect of many Hong Kongers.
"Hong Kong used to be a prosperous city and now she has become a police state. Hong Kong is my home. We should protect her. We should resist," said a 70-year-old who only gave his last name, Hui.
He was part of a group of 60- to 70-year-olds on Nathan Road, Kowloon, cheering the protesters, urging them to block the road and warning them when police were returning.
Hong Kong has been battered by four months of often massive and violent protests against what is seen as Beijing's tightening grip on the Chinese-ruled city.
The protests started in opposition to a now-abandoned extradition bill but have widened into a pro-democracy movement and an outlet for anger at social inequality in the city, which boasts some of the world's most expensive real estate.
The unrest has plunged the city into its worst crisis since Britain handed it back to China in 1997 and poses the biggest popular challenge to Chinese President Xi Jinping since he came to power in 2012.
Hong Kong is facing its first recession in a decade due to the protests, with tourism and retail hardest hit.
Hong Kong's protests have also taken on an element of civil disobedience by residents angry at what they see as excessive force by riot police and a heavy-hand by the government which introduced colonial-era emergency laws to quell unrest.
Sporadic small protest rallies often now consist of face-mask wearing school children, office workers, shoppers and the elderly. Hardcore activists who clash with police tend to emerge later in the day.
"I think the police have been using their power to suppress the citizens," said resident Mary Lam, 26.
"That’s why more and more young children come out and protest against the government and the police. Those being arrested don’t have human rights. This is not fair."
The Hong Kong government introduced emergency laws to ban the wearing of face masks at public rallies, a move that sparked some of the worst violence since the unrest started in June.
The violence has seen police trade tear gas and rubber bullets with protesters throwing petrol bombs and bricks. Two people have been shot and wounded during protests.
Police have arrested more than 2,300 people since June. Hong Kong leader Carrie Lam has said that since September, nearly 40% of those arrested were under the age of 18 and 10% under 15, without giving the total number of arrests.
Protesters have targeted Chinese banks and shops with links to mainland China. A group wielding hammers damaged a Huawei store on Sunday.
Demonstrators believe China has been eroding Hong Kong's freedoms, guaranteed under the "one country, two systems" formula introduced with the 1997 handover.
The now-withdrawn extradition bill, under which residents would have been sent to Communist-controlled mainland courts, was seen as the latest move to tighten control.
China denies the accusation and says foreign countries, including Britain and the United States, are fomenting unrest.
Protesters scaled the city's Lion Rock peak and hoisted a large statue they called "Lady Liberty" early on Sunday to rally anti-government activists.
The three-metre (9-feet) statue, wearing a gas mask, helmet and protective goggles, was carried up the 500-metre (1,500-feet) peak in the dead of night by several dozen protesters, some wearing head lamps, during an overnight thunderstorm.
It held a black banner that read "Revolution of our time, Liberate Hong Kong" and could be seen from the city below.
The statue represented an injured woman protester believed by activists to have been shot in the eye by a police projectile. One of the protesters told Reuters he hoped it would inspire Hong Kong people to keep fighting.
"We are telling people that you mustn't give up. All problems can be resolved with Hong Kong people's persistence and hard work to reach our aims," he said.
Reporting by James Promfret, Clare Jim, Poppy McPherson and Twinnie Siu; Writing by Michael Perry; Editing by Paul Tait and Raissa Kasolowsky