The 31-year-old from China won the semi-final contest 6-2 6-4 at the Rod Laver Arena on Thursday.
The world number four started the match in brilliant fashion, racing onto a 5-0 lead in the first set.
Bouchard won successive games, but that could only delay the inevitable as Li wrapped up the set 6-2 in just 28 minutes.
However, the Canadian teenager stepped up her game in the second set and provided a stiff competition for Li.
The 19-year-old surged 2-0 ahead, but Li broke her in each of her next three service games to regain the momentum.
Bouchard committed just nine unforced errors compared to Li's 15 in the second set, but still failed to get the better of her experienced opponent and lost it 6-4 in just under an hour.