This paper studies the relationship between investment and cash flow in the manufacturing sector of Shanghai in order to examine the existence of lending bias in this sector. Our empirical results confirm that the investment of manufacturing enterprises in Shanghai is sensitive to cash flow and that cash-flow variables play a significant role in determining investment. In addition, private enterprises are significantly more liquidity-constrained than state-owned enterprises in terms of the availability of cash flow while international joint ventures are the least liquidity-constrained in terms of replacement capital. Furthermore, collective-owned enterprises are less liquidity-constrained than state-owned enterprises in terms of the availability of cash flow. This may be due to the inter-firm loans and close relationship between state-owned and collective-owned enterprises.