There are many studies examining the external financing of small and medium enterprises (SMEs). The “conventional wisdom” on SME financing argues that large banks are reluctant to serve SMEs; while relationship banking allows SMEs to obtain products and service from the niche banks who think SMEs are of strategic importance (Berger and Udell, 2006). De la Torre et al. (2010) present new evidence against the “conventional wisdom” by suggesting that SMEs do not depend on relationship lending and large banks are interested in serving SMEs. There is a literature gap on the possibility that SMEs rely on governments to obtain bank loans. It is probable that SMEs can count on their connections with state-owned banks to secure bank credits. More, the Chinese central government has an incentive to intervene in the public firm’s policies in the following ways. First, the government intervenes through majority ownership in public state-owned enterprises (SOEs). Although the private sector has been growing fast (Allen et al., 2005), SOEs continue to dominate the Chinese share markets. For instance, Chen et al. (2011) document that 75 percent of their sample firms are SOEs and 33 percent listed SOEs have a chief executive officer (CEO) or a chairman who is a current or former government official. Second, the “big four” state-owned banks (Bank of Constructions, Bank of China, Bank of Agriculture and China Industry and Commerce Bank) discriminate the Chinese banking industry. Hence, when an SOE is in financial trouble, different levels of governments influence the “big four” to provide bank loans with favorite terms to decrease the SOE’s possibility of defaults. Third, regional governments in China frequently interfere with banks’ credit decisions to boost the gross domestic product (GDP). It is common that regional governments help firms with subsidies to lower the firms’ probability of defaulting on short-term borrowing, and help the firms to secure long-term credits to stimulate the local economy (Fan et al., 2012). Also, there is a debate on whether the improvement in bank competition will reduce the SMEs’ financing constraint (Freixas and Rochet, 1997; Gunji et al., 2009; Stiglitz and Greenwald, 2003). Hence, we test whether the level of bank competition affects the government willingness to intervene state-owned banks’ loan decision. Our sample consists of all firms listed on the Chinese mainboards (A-share companies), which have complete financial information from 2000 to 2010. We use the ordinary least squares (OLS) at the firm level. In addition, we use the dynamic system generalized method of moments (GMM) to address the endogeneity issue in our model. Our results reveal some important findings. First, we find that SMEs are more likely to access bank loans only in regions with a higher level of government intervention than median government intervention. This finding implies that Chinese Government intervention in the SOE banks’ credit policies enables the SMEs to secure more bank loans. Second, the result shows that the government is more motivated to help SMEs to obtain more external debt in regions where the level of bank competition is lower than the median bank competition index. This piece of evidence shows that the government is motivated to alleviate SMEs’ debt constraint in regions with a lower level of bank competition. Last, we find evidence that firms with politically connected CEOs are likely to access bank loans. This finding helps explain why firms’ financing decisions are not independent of government intervention in China.