China's premier on Monday cut the Asian giant's growth target to 7.5 percent for 2012 in a key annual speech focused on economic expansion, stability and military might ahead of a leadership change.

Wen Jiabao, who will step down as prime minister next year, said China faced "many difficulties and challenges" as he delivered his opening address to the annual session of the National People's Congress (NPC), China's parliament.

The 2012 NPC session is the last before a handover of power that begins later this year, and leaders are anxious to ensure the world's second-largest economy grows at a steady pace while keeping a lid on social unrest.

Wen also said China's military needed to be better prepared to fight "local wars", a day after the Asian powerhouse announced its defence spending would top $100 billion in 2012 -- an 11.2 percent increase on last year.

The lower growth target, down from eight percent last year, is an official acknowledgement that China's export-driven economy is slowing as Europe's debt crisis and the sluggish recovery in the United States hurt demand for its goods.

China's economy expanded by 9.2 percent last year, slowing from a blistering 10.4 percent in 2010, as global turbulence and efforts to tame high inflation put the brakes on growth.

"We are keenly aware that China still faces many difficulties and challenges in economic and social development," Wen said in his annual speech at the opening of the 10-day gathering in Beijing's Great Hall of the People.

"There is downward pressure on economic growth. Prices remain high. Regulation of the real estate market is in a crucial stage."

Expanding domestic demand was a key focus this year, Wen said, announcing increased investment in low-cost housing, social security, education and higher wages as Beijing seeks to reverse "the trend of a widening income gap".

China typically exceeds the annual growth target unveiled every March, and most economists are predicting gross domestic product growth of 8.0-8.5 percent this year.

Wen vowed to maintain property restrictions introduced in the past two years to rein in surging real estate prices that had risen out of the reach of many ordinary Chinese.

The inflation target was set at 4.0 percent for 2012, unchanged from last year, after consumer prices rose 5.4 percent in 2011, causing concern about the prospect of social unrest in the country of more than 1.3 billion people.

Maintaining social stability is high on the agenda at the annual parliament meeting, attended by about 3,000 delegates from across the country.

Unveiling its 2012 budget, the finance ministry said public security spending would increase by 11.5 percent to 701.7 billion yuan this year -- more than the 670 billion yuan earmarked for national defence.

Wen also highlighted the sensitive issue of government land grabs, a major cause of public unrest in China, where almost 50 percent of the population still lives in the countryside.

Speaking a day after landmark elections in the southern village of Wukan, where a revolt last year put the growing public anger over land seizures in the spotlight, Wen said farmers' rights to land "must not be violated".

He also said China should enhance the ability of its military to "win local wars under information age conditions", amid concern about Beijing's growing assertiveness over its territorial claims.

China's military budget has seen double-digit increases every year for much of the last decade, worrying the United States, which is expanding its own military power in Asia.

The NPC has limited power and the meeting serves more as a grand rally exalting the ruling Communist party than a forum for real parliamentary debate.

Most decisions are made ahead of time, but this year's event will be closely watched for indications of which leaders will join the Politburo Standing Committee, the highest decision making body in the country, later this year.

President Hu Jintao, Premier Wen and five other leaders are due to relinquish their positions on the Standing Committee at a congress later this year that will also announce their replacements.

During the meeting, which ends on March 14, the legislature is also expected to approve proposed changes to the country's Criminal Procedure Law, which activists fear will legalise secret detentions.