•We investigate the link between cash flow and firm-level productivity.•We use a panel of 130,840 Chinese manufacturing firms over the period 2001–2007.•We find that TFP is strongly constrained by the availability of internal finance.•The link is stronger for illiquid foreign and private firms.•Foreign non-exporters display higher dependence of TFP on cash flow than exporters. Financial factors have been found highly important in influencing firms’ real activities and in promoting aggregate growth. Yet, the linkage between finance and firm-level productivity has been overlooked in the literature. We fill this gap using a panel of 130,840 Chinese manufacturing firms over the period 2001–2007 to estimate a TFP model augmented with cash flow. We find that, especially for illiquid foreign and private firms, productivity is strongly constrained by the availability of internal finance. Furthermore, contrary to private firms, foreign non-exporters display higher dependence of productivity on cash flow than exporters.