Li made the remarks during the first inspection tour of 2016 on Monday and Tuesday in north China's Shanxi Province, which is known for large coal reserves and output.
After visiting Taiyuan Iron and Steel Group, a world-leading stainless steel producer, Li said the steel sector is suffering badly from excessive production and flagging demand.
"China should put unyielding effort into restructuring by eliminating outdated capacity and forbidding the construction of new capacity," he said.
Companies should take pains in enhancing technology, quality and management to expand the country's effective supply with more quality products, Li said.
In a coal mine of Xishan Coal electricity Group, Li took a tramcar more than 300 meters underground to talk with miners and check the company's safety conditions.
"The coal mining sector is facing hardship it has rarely seen in the face of a serious glut and plunging prices," he said.
Mines should take the initiative in reducing output while helping laid-off workers find new jobs, according to the premier.
Li also visited a technology park in Taiyuan with more than 200 high-tech companies.
"China has huge market potential and bright prospects; growth impetus from innovation will create new jobs," Li said.
He vowed more government support for entrepreneurs.
The premier then went to a shantytown that will be renovated into apartment buildings this year, urging local governments to lessen people's wait times before moving into the new buildings.
He also urged companies to innovate and take risks, after visiting a museum on ancient Shanxi merchants who played a dominant role in finance and trade during the Ming and Qing dynasties.
