The protest movement is supported by 59% of the city's residents polled in a survey conducted for Reuters by the Hong Kong Public Opinion Research Institute.
The move comes as sometimes violent protests roil Hong Kong in a months-long show of anti-Beijing sentiment.
Chief Executive of China's HKSAR Carrie Lam extended a warm welcome to Luo on his assumption of the new post in a statement.
The Hong Kong Retail Management Association (HKMA) estimates about 7,000 businesses, or more than one in 10 retailers, will be forced to close in the next six months. The city, a former British colony, was handed back to China in 1997 and is now a special administrative region of the country, while Portugal returned Macau two years later.
Hong Kong sank into recession for the first time in a decade in the third quarter a year ago as the protests plunged the city into its worst crisis since it reverted from British to Chinese rule in 1997.
Connors said he was saddened by the incident, which he said was evidence of the "further erosion of freedoms" in Hong Kong. "His miscalculations of Hong Kong" may have led to his downfall, particularly after the elections.
"Given his age it is possible he is only a stop-gap appointment", Ma said of Luo. "He's just a party boss - he has no connection with Hong Kong and no foreign affairs expertise".
Hong Kong Financial Secretary Paul Chan (陳茂波) on Sunday said that a contraction in the fourth quarter past year was "unavoidable" and that the budget next month would focus on boosting the economy.
Matthew Connors, an award-winning photographer, was denied entry into Hong Kong, it was reported on Saturday. "I think it will be very hard for him to be helpful for the Hong Kong government, whereas the previous guy knew Carrie Lam well".
The protests were triggered by a now-withdrawn extradition bill in June.
About 100 protesters marched through a Sheung Shui mall last month, demanding that mainland Chinese traders leave the territory.
Several petrol bombs were thrown at the Sheung Shui police station, about 1.5 kilometres (a mile) from where the rally took place.
However, it has also become a centre of pro-democracy protests where the protesters have burnt the Chinese flag. Xi asked. "I sincerely wish Hong Kong well".
"A prosperous and stable Hong Kong is the aspiration of Hong Kong compatriots, as well as the expectation of the people of the motherland", he said.
Mr Luo worked for the Anhui government between 1982 and 1999.
Before moving to Shanxi, Luo had been the top party official in the western province of Qinghai.
