bank lending vary with business cycles and overall stance of monetary policy, and do they differ across firms of different size? Previous studies on monetary policy in China mainly focus on the links between monetary policy and macroeconomic performance, and assume that the monetary transmission mechanism in China is the same as that in advanced economies(Qin et al (2005), Geiger(2006), Fan and Zhang(2007), Laurens and maino(2007); among others) A few recent studies discuss the transmission mechanism under regulated interest rates and find that monetary policy instruments are able to influence interest rates in money banking system)to the other(non-regulated money and bond markets)(Porter and Xy e and bond markets, suggesting policy signals can be transmitted from one track (regul 2009: Chen et al., 2011; He and wang, 2012) However, studies on the links between monetary policy and bank lending in China are rare. Bank lending, interest rate and asset price channels are found to exist in China(Sun et al., 2010), but the effectiveness of the bank lending channel varies across provinces and banks(Ho, 2012). More specifically, the impact of monetary policy on lending is weaker for larger banks and banks with lower levels of liquidity( Gunji and Yuan, 2010) However, none of these studies examines bank lending behavior using loan level data In this paper, we find that bank lending is not only affected by policy changes by the central bank, but also reacts to price changes in the non-regulated money and bond markets. Under the dual-track interest rates system, banks react to signals from both tracks when making loans The empirical analysis of the paper focuses on how the price and quantities of bank loan are affected by both monetary policy instruments and market-determined interest rates after controlling for loan features, bank types, macroeconomic variables and firm characteristics. We find that the People's Bank of China(PBc) can effectively influence loan rate through policy instruments, with the benchmark deposit rate being the most powerful instrument, followed by the Reserve Requirement Ratio(RRR). However, these two instruments have little impact on loan size. In contrast, both the price and quantity of loans are affected by the market-determined interest rates More interestingly, the impact from policy instruments and market interest rates would vary with firm size and the stance of monetary policy. While the effects on loan rates do not differ systematically across firms of different size, the effects on loan size are asymmetrical:, changes in benchmark deposit rate and market interest rates affect I firms more than smaller firms, but changes in RRR affect smaller firms more than firms The impact on loan rates from changes in the benchmark deposit rate and the rrr would also vary with the prevailing monetary policy stance. Changes in the benchmark deposit rate have larger effects on loan rates when monetary policy is being loosened than when Hereafter, the market interest rate means the representative interest rates(such as the 7-day Repo rate)in non-regulated money and bond markets.3 bank lending vary with business cycles and overall stance of monetary policy, and do they differ across firms of different size? Previous studies on monetary policy in China mainly focus on the links between monetary policy and macroeconomic performance, and assume that the monetary transmission mechanism in China is the same as that in advanced economies (Qin et al (2005), Geiger (2006), Fan and Zhang (2007), Laurens and Maino (2007); among others). A few recent studies discuss the transmission mechanism under regulated interest rates and find that monetary policy instruments are able to influence interest rates in money and bond markets, suggesting policy signals can be transmitted from one track (regulated banking system) to the other (non-regulated money and bond markets) (Porter and Xu, 2009; Chen et al., 2011; He and Wang, 2012). However, studies on the links between monetary policy and bank lending in China are rare. Bank lending, interest rate and asset price channels are found to exist in China (Sun et al., 2010), but the effectiveness of the bank lending channel varies across provinces and banks (Ho, 2012). More specifically, the impact of monetary policy on lending is weaker for larger banks and banks with lower levels of liquidity (Gunji and Yuan, 2010). However, none of these studies examines bank lending behavior using loan level data. In this paper, we find that bank lending is not only affected by policy changes by the central bank, but also reacts to price changes in the non-regulated money and bond markets. Under the dual-track interest rates system, banks react to signals from both tracks when making loans. The empirical analysis of the paper focuses on how the price and quantities of bank loans are affected by both monetary policy instruments and market-determined interest rates after controlling for loan features, bank types, macroeconomic variables and firm characteristics. We find that the People’s Bank of China (PBC) can effectively influence loan rate through policy instruments, with the benchmark deposit rate being the most powerful instrument, followed by the Reserve Requirement Ratio (RRR). However, these two instruments have little impact on loan size. In contrast, both the price and quantity of loans are affected by the market-determined interest rates.3 More interestingly, the impact from policy instruments and market interest rates would vary with firm size and the stance of monetary policy. While the effects on loan rates do not differ systematically across firms of different size, the effects on loan size are asymmetrical: ,changes in benchmark deposit rate and market interest rates affect larger firms more than smaller firms, but changes in RRR affect smaller firms more than larger firms. The impact on loan rates from changes in the benchmark deposit rate and the RRR would also vary with the prevailing monetary policy stance. Changes in the benchmark deposit rate have larger effects on loan rates when monetary policy is being loosened than when 3 Hereafter, the market interest rate means the representative interest rates (such as the 7-day Repo rate) in non-regulated money and bond markets