China’s government said the nation’s financial system must “better” serve economic growth under a prudent monetary-policy framework as the cost of borrowing on the interbank market surged.

Authorities will boost credit support for industries the government has defined as strategic and those that are labor-intensive, the State Council, or Cabinet, said in Beijing today after a meeting led by Premier Li Keqiang. The nation must more firmly guard against financial risks, according to a statement on the central government’s website.

The comments follow a jump in the seven-day repurchase rate, a gauge of interbank funding availability, to the highest level since June 2011. Slowing economic growth combined with a crackdown on illegal capital inflows, efforts to rein in shadow banking and a campaign to control home prices have contributed to increased borrowing costs. The central bank has refrained from using reverse-repurchase agreements to inject funds into the interbank market since Feb. 7.

“Beijing’s new approach is to focus on reform, rather than stimulus,” said Qu Hongbin, HSBC Holdings Plc’s Hong Kong-based chief China economist, who cut his estimate for expansion this year to 7.4 percent from 8.2 percent. “In the last three months, we have seen enough evidence that the current generation of leadership is really determined to push forward reform.”

The State Council meeting today discussed how the financial industry can support a restructuring of China’s economy, according to the statement. Chinese leaders have sought to reduce the nation’s reliance on investment and exports for economic growth.

Push Forward

China must push forward interest-rate liberalization, encourage corporate overseas investment, boost bond issuance and support those seeking to buy their first homes, according to the statement. Bank lending for projects in industries with overcapacity must be banned, the State Council said.

The financing system must “support economic transformation and upgrading in a more forceful way, serve real economy development in a better way, promote domestic demand in a more targeted way and prevent financial risks in a more concrete way,” the government said in the statement.

China must also uphold prudent monetary policy and “use it well,” and keep a reasonable scale of monetary aggregates, the State Council said.

Central bank Governor Zhou Xiaochuan said in April that the nation needs to “sacrifice short-term growth” to make reforms in the economy.

Chinese industrial production rose a less-than-forecast 9.2 percent from a year earlier and factory-gate prices fell for a 15th month in May, while export gains were at a 10-month low and imports dropped. First-quarter economic growth slowed to 7.7 percent from 7.9 percent in the last three months of 2012.

Investment banks from Morgan Stanley to UBS AG this month cut their estimates for China’s growth in 2013, and Barclays Plc is estimating that expansion will slow to 7.4 percent, below the government’s full-year target of 7.5 percent.