The Commonwealth and at least one state government have poured more than A$250 million of deposits into accounts held at the Australian branch of the Bank of China since last October.Banking Day yesterday revealed details of the dramatic increase in Australian government banking activity with the state-owned Chinese bank after inspecting official data published by the Australian Prudential Regulation Authority.In the five months to the end of February, the Bank of China has expanded its government related business from zero to A$254 million in deposits and $100 million in loans.An impeccable banking industry source yesterday confirmed to Banking Day that deposits are flowing into the bank's vaults from the Commonwealth government and at least one of the state or territory governments.The monthly rate of expansion in Bank of China's government deposits is so dramatic that it is almost matching - in absolute terms - growth recorded by the Commonwealth Bank.CBA, the largest holder of public sector deposits in the country, grew its government deposit base by A$348 million in the five months to the end of February.Westpac, which has recently lost several key mandates to provide transaction banking and payments services in the government sector, suffered a net outflow of government deposits of almost A$11 billion in the same five month period.The Victorian Government last night declined to comment on whether it had lodged funds in accounts with the Bank of China but a spokesperson could not rule out the possibility that it had.However, the spokesperson for Victorian Treasurer Tim Pallas said the government had not sourced any borrowings directly from the bank."Neither the Victorian Government or its agencies have borrowed from the Bank of China," said the Treasurer's spokesperson."All direct financing for the government and its agencies and departments is provided by the Treasury Corporation of Victoria. "The Corporation sources funding through bond programs in the wholesale financial markets."A federal government source told Banking Day that the Bank of China's $100 million government loan book was exposed exclusively to counterparties within the Commonwealth Government.The source, who provided background on condition of anonymity, said they were "not in a position" to name the agencies that had borrowed from the bank.Bank of China's emergence as the fastest-growing deposit taker in the government sector is a surprise given the potential conflicts of interest that can arise from formal dealings with state-owned foreign banks.The bank is conducting its government banking activities exclusively through its authorised branch in Australia rather than through the locally incorporated banking subsidiary.While it is almost impossible to mine information on the financial performance of the branch operation, the local subsidiary that trades as Bank of China Australia Limited is making an impression in retail banking.The subsidiary has pushed aggressively into the domestic mortgage market in recent years and now has a A$2 billion loan book.In the 12 months to the end of December 2017, the retail banking subsidiary posted a 53 per cent rise in net profit of A$8.5 million.Bank of China's retail subsidiary in New Zealand last week