Abstract:The technological development of manufacturing enterprises needs the appropriate type of financial support. Then, how does our financial system which is led by banks affect it? From the perspective of technology distance, this paper constructed a Schumpeterian growth model to explore the effect and mechanism of bank-leading financial system on technological progress of manufacturing enterprises, and made an empirical test using the matching data of China Industrial Enterprise Database and City Database. The research found that bank-leading financial system has a differential impact on the technological progress of manufacturing enterprises with different technology distances. When enterprises are far from the technology frontier, bank-leading financial system has an obvious promoting effect on their technological progress, but this effect will turn from positive to negative as enterprises approach the frontier. As the manufacturing enterprises approach the frontier, the negative effect of Bank-leading on their technological progress appears earlier in enterprises which is non-state-owned or lack of mortgage assets. In terms of mechanism of action, when manufacturing enterprises are far away from the technology frontier, bank-leading financial system can stimulate enterprises'' innovation to promote their technological progress. However, as manufacturing enterprises approach the frontier, bank-leading financial system cannot drive their technological progress through innovation.