China’s economy had faced “severe challenges” as it sought to balance the new risks with the “growing pains” of transforming its economy.
Growth in consumption was slowing and China’s business environment fell short of market expectations, he said. The public was “dissatisfied in many areas” including education, healthcare, elderly care, housing and food safety.
“We must be fully prepared for a tough struggle,” he said of the year ahead.
Last year China had ensured social stability, but the pressures on job creation would continue unabated, he said.
China’s expected unemployment rate will rise to 5.5 per cent, up from 5 per cent last year. The rising joblessness is driven by a slowdown in imports and exports that is hitting manufacturing industries, an increase in university graduates, and workers displaced by reforms to shut down “overcapacity” in state industries such as steel and coal.
Li said with a population close to 1.4 billion maintaining relatively full employment was critical.
Growth in defence spending will slow, from 8.1 per cent last year to 7.5 per cent this year, or 1.19 trillion yuan. Science and technology spending will rise 13.4 per cent.
Amid tensions with the US over China’s state support for its technology industries, such financial support appears set to continue, as well as programs to encourage start-ups.
“Our capacity for innovation is not strong and our weakness in terms of core technologies for key fields remains a salient problem,” said Li, alluding to Chinese dependence on overseas microchips.
The issue was highlighted in 2018 as smartphone maker ZTE temporarily faced a US technology export ban.
Tax cuts, worth 1.3 trillion yuan last year, would be increased, focused on manufacturing and small business. Companies would benefit from a total of 2 trillion yuan in corporate tax and fee cuts.
To support the private sector in a slowing economy, loans to small businesses by state banks would increase by 30 per cent, he said.
But Li said the government would “refrain from using a deluge of stimulus policies” and would continue with structural reform. China faces a long term risk of an over indebted local government and corporate sector.
Last year, China opened 4100 kilometres of high speed railway, 6000 kilometres of expressways and built 300,000 kilometres of rural roads.
This year, another 800 billion yuan will be spent on railway construction and 1.8 trillion yuan on roads and waterways.
Infrastructure spending will rise by 40 billion yuan to 577 billion yuan.
But government departments were told to tighten their belts, and will have to cut expenditure by 5 per cent and slash overseas visits.
Touching on foreign policy, Li said the China’s relations with major countries “remained generally stable”. He said the trade dispute with the US was being handled “appropriately”.
On the environment, and impacting on Australia’s energy exports to China, the replacement of coal with natural gas and electricity was “steadily advanced” in 2018.
Kirsty Needham is China Correspondent for The Sydney Morning Herald and The Age.