This study aims to construct measures of liquidity creation for Chinese banks and examine the determinants on bank liquidity creation. We then explore the relationship of liquidity creation with bank capital, financial openness situation, bank reform and other bank status. Wetest the financial fragility crowding out hypothesis and risk absorption hypothesis,and investigate the impacts of liquidity creation on bank performance. We find that bank capital isnegatively related to the liquidity creation for banks in China, which does not support the risk absorption hypothesis.Also,better financial openness situation and bank reforms encourage banks to create liquidity especially in the recent decade. Furthermore,contrasting previous study of developed markets, liquidity creation negatively affects the bank performance for large banks, which indicates that the liquidity surplus exists, and bank performance cannot catch up the growth of liquidity creation, but small banks’ performance is improved with high liquidity creation. Our results imply regulators coulddecrease the capital requirement ratio and slow down opening the financial markets and bank reform procedures, to reduce the rapid growth of liquidity creation, and thus improving large bank performance to support a sustainable development of the banking industryin China.