This system has led to great inefficiencies, with workers often being grossly underemployed but unwilling, or unable, to move to sectors where they are needed.

''The practice of identifying employees as belonging permanently to one sector of the economy or another should gradually be abandoned,'' Mr Li said.

He said wages should increasingly reflect performance. In addition, subsidised housing, health care and other benefits should be incorporated into regular wages so the ''the real income of citizens will become more readily apparent''.

In order to increase labour mobility, housing should be commercialised and unemployment, old age and health insurance systems should be developed.

Under the present system, welfare benefits are lost when a worker switches jobs.

Mr Li outlined a number of other economic reforms.

He said efforts would be made to introduce a tax system whereby enterprises paid the state a regular tax plus a percentage of profits.

Enterprise contributions to the state are currently subject to negotiation under the contract system.

He also emphasised that tax collection should be improved and that tax collectors should ''never overstep their authority to grant tax reductions or exemptions''.

On banking reform, Mr Li said specialised banks such as the Industrial and Commercial Bank and the Agricultural Bank should gradually relinquish non-commercial functions - that is, issuing loans at the decree of the government on the basis of politicalfavours rather than commercial criteria.

But for now, the specialised banks ''should continue to perform both commercial and non-commercial functions'', he said.

The government would also set up banks whose sole function was to make low-interest loans for state projects.

''All kinds of commodity markets'' should be established while ''monetary markets, including markets for stocks and bonds, should be established under the macro-control of the state'', he said.

Mr Li did not, however, specify whether Beijing would permit the establishment of a third official stock exchange in the near future.

He committed the government to further price reform, saying: ''We should continue to increase the number of commodities whose prices are regulated by market forces and gradually rationalise price relations.

''We should establish a system in which most prices are determined by market forces, but the state regulates them as necessary.'' He also said the subsidies should gradually be lifted from such basic commodities as coal, electricity, and oil, prices of which were currently excessively low, thus leading to financial losses by companies operating in those sectors.