SHANGHAI stocks gained yesterday, led by small-cap companies and emerging industries, after Chinese Premier Li Keqiang called for less political power in the market economy to boost creativity and achieve a transformation of government.

The Shanghai Composite Index added 0.35 percent to end at 2,224.8 points.

Li said China should delegate political power in the economy and allow market mechanism to allocate resources more efficiently and act as a catalyst for market creativity, according to a transcript released on the central government's website.

Li urged that administrative approval be simplified in order to lower the threshold for startups and promote the development of small and medium enterprises.

"Li's comments have improved market confidence in China's economic transformation toward a more innovative pattern," said Gong Dejun, analyst with China Galaxy Securities.

IT firms rose after media reported the Ministry of Industry and Information Technology and the Ministry of Finance will set up a special fund to further develop the Internet of Things.

Tsinghua Tongfang Co jumped 3.7 percent to 7.48 yuan (US$1.22). Aisino Co, which is engaged in computer system applications, rose 1.7 percent to 13.76 yuan.

Environmental protection-related stocks gained after a government white paper said China will give the environment a priority.

Beijing Capital Co, specializing in wastewater disposal, rose 2 percent to 7.51 yuan.