He also admitted that China could "learn a lesson" from the economic crises in neighbouring countries.
Mr Li's report on the state of the nation opened the National People's Congress (NPC), China's annual parliament. Mr Li - controversially - has secured his post as chairman of the NPC, while the new prime minister will be Zhu Rongji, at present the deputy prime minister in charge of the economy.
"Bureaucratic behaviour divorced from the needs of the masses and proneness to boasting and exaggerations divorced from reality are serious problems," Mr Li said, without explaining why repeated attempts to beat official corruption have failed.
Keeping the engine of economic growth churning at a time when insolvent state enterprises are being reorganised and closed is the biggest challenge for 1998.
Mr Zhu's planned overhaul of central government ministries and the civil service is the centre-piece of this year's NPC. Mr Li confirmed that the number of ministries and commissions would be cut. He said the revamp, which will be announced in detail today, should be handled "persistently, prudently, patiently and carefully", a veiled reference to the large number of cadres who will lose their jobs.
Mr Li said fixed asset investment would grow by 10 per cent this year, part of a massive $750bn three-year programme for infrastructure and public works. It is hoped that this will create jobs.
And, in a sign of how China's social economy has changed in two decades of reform, Mr Li announced that China would introduce an inheritance tax.Reuse content