Tiananmen Square protests and democracy movements
In the Hong Kong Basic Law Drafting Committee, Lee also actively lobbied for a democratic post-1997 political system with Szeto Wah. He and the liberals proposed the "Group of 190" proposal which demanded a directly elected government set up as soon as possible. Their view was countered by a number of conservatives in the Drafting and Consultative Committees who rallied under the name of the "Group of 89" backed by big-business interests.
During the Tiananmen Square protests May and June 1989, Martin Lee was an outspoken supporter of the student movement for more democracy and freedom in China. He, Szeto Wah and other liberals formed the Hong Kong Alliance in Support of Patriotic Democratic Movements in China in May of which he was the vice-chairman, organising multiple rallies in support of the students in Hong Kong which attracted hundreds of thousands of attendees. After the military crackdown, Lee led the Hong Kong demonstration against the Beijing authorities. He told BBC's Jonathan Dimbleby that "handing over 5.5 million people to China who are deemed counter-revolutionary is like handing over 5.5 million Jews to Nazi Germany during the Second World War, when they were born in a British territory." He also said that it could not be presumed that "the Joint Declaration is as inviolable as the Bible. Britain and China should restart talks to reach a better agreement for Hong Kong than the declaration decided in 1984." He also testified before the United States Congress Committee on human rights and aired support to imposing economic sanctions against for the massacre.
In July 1989, he and Szeto Wah were labelled as "counter-revolutionaries" by the state-owned People's Daily. The duo's membership in the Drafting Committee was subsequently stripped by the National People's Congress Standing Committee after they were barred from attending any meetings due to their "anti-China stance". He was then barred from entering mainland China, with the only exception of a brief visit in Guangdong in 2005 as a Legislative Council member, in which he responded: "As a Chinese citizen, I am not allowed back to my own country even though I'm welcome in every country in the world." The strained relationship between Lee and the Communist Party also led to the constant attacks from the pro-Beijing media.
In response to the worsening crisis of confidence in Hong Kong, he joined hands with many politicians from different spectrum to advocating the granting of the right of abode in Britain to Hong Kong people as a "safety exit". He also called for the rapid introduction of the Hong Kong Bill of Rights Ordinance and a fully democratically elected Legislative Council before 1997. He also began to lobby the United States to develop a specific policy on Hong Kong's democracy development. However he opposed the US idea of withdrawing "most favoured nation" status from Beijing. Martin Lee's efforts resulted in the adoption of the United States–Hong Kong Policy Act in 1992.
Martin Lee has increasingly been seen as the spokesman for Hong Kong democracy on the international stage. In June 1995, Asiaweek magazine named Lee one of Twenty Great Asians "who have changed the region over the past two decades." In September 1995, ABC TV named Martin Lee its "Person of the Week" for leading Hong Kong's pro-democracy forces to electoral success. Lee was also awarded by a number of international organisations, including the 1995 International Human Rights Award by the American Bar Association, the Prize For Freedom by the Liberal International in 1996, the Democracy Award by the US National Endowment for Democracy in 1997, and the "Schuman Medal" in 2000 which Lee was the first non-European to receive from the European Peoples Party and European Democrats. In November 2004 he was awarded by Rutgers College with the Brennan Human Rights Award.
In preparation for the first direct elections of the Legislative Council in 1991, the liberals gathered themselves on the basis of the Joint Committee on the Promotion of Democratic Government to form a first major political party in Hong Kong, the United Democrats of Hong Kong in April 1990. Martin Lee was elected the party's founding chairman. Under Lee's leadership, the United Democrats won a landslide victory in the election, pocketing 12 of the 18 directly elected seats, out of the total number of 60 seats in the Legislative Council. Martin Lee himself was elected through the Hong Kong Island East constituency, receiving the most votes in the election. After the election, the United Democrats became the largest party in the legislature.
In response to the election, the British government decided to appoint Chris Patten to become the last Hong Kong Governor. Chris Patten announced the constitutional reform package which largely expanded the electorates of the nine newly created functional constituencies. The package was strongly opposed by the Beijing government and alienated the pro-government Liberal Party led by Allen Lee who now became Beijing's allies in the legislature. The United Democrats generally supported the Chris Patten's package and eventually helped it to get passed in the Legislative Council. In response to Patten's proposal, the Beijing government decided to dismantle the "through train" agreement, which allowed the 1995 elected legislature to transition beyond 1997, and replace it with the Provisional Legislative Council in which Lee deemed "an illegal and unconstitutional body".
In preparation for the 1995 three-tier elections, the pro-democracy camp further consolidated themselves by merging the United Democrats and another moderate pro-democracy party Meeting Point into the Democratic Party in 1994 in which Martin Lee was elected the founding chairman. In the 1995 Legislative Council election in which all seats were elected, the Democratic Party scored another landslide victory, winning 12 seats of the 20 directly elected seats and 19 seats out of the total 60 seats, almost double than the second party Liberal Party. With other pro-democracy parties and individuals, the pro-democracy camp commanded about half of the seats in the legislature in the last two years of the colonial rule. On 30 June 1997 the eve of the handover of Hong Kong, the pro-democrats were forced to step down from the Legislative Council as the "through train" was dissolved.
On the eve of the handover of Hong Kong on 1 July 1997, Lee travelled to Europe, Australia and the United States to express his concerns to officials, politicians and business leaders. He met in April with US Secretary of State Madeleine K. Albright and later with President Bill Clinton, who had openly voiced out his support in democracy and human rights in China and Hong Kong. However he was dissatisfied with the Clinton administration's unwillingness to take a tough line on the Beijing's policy of Provisional Legislative Council. He met with Clinton again in 1998 during his visit to Hong Kong.
It was widely speculated that whether Martin Lee would become "Martyr Lee", a nickname given by some in the business community, after 1997 given his high-profile pro-democracy and anti-Beijing stance which was seen as "counter-revolutionary" and "subversive" by Beijing. Lee said he would never leave Hong Kong and stressed that he was not anti-China but only opposed the regime in Beijing.