Abstract: This paper aims at identifying the relationship between financial expenditure, social material capital formation and economic growth based on the macro economic data of China’s 28 provinces from 1994 to 2010. The results indicate that financial material capital expenditures exert a negative effect on economic growth. Meanwhile the spillover effects of material capital bring in an indirect positive effect; while the effects caused by the financial non-material capital expenditures are just on the contrary. In general, the increasing financial material capital expenditures are going against China’s economic growth, while the non-material is positive. Thus, starting from the viewpoint of promoting sustainable economic growth, the government should pay attention to the allocation and efficiency of financial material capital expenditures, and increase the amount and proportion of financial non-material capital expenditures appropriately.

Key words: financial expenditure; financial material capital expenditure; financial non-material capital expenditure; social material capital formation; economic growth