Digital Technologies Have Helped Close the Urban-Rural Financial Divide, Report Peking and Beijing Normal University Professors

Title: Digital Economy, Financial Inclusion, and Inclusive Growth (数字经济、普惠金融与包容性增长)
Journal: Economic Research
Authors:Zhang Xun, Peking University and Beijing Normal University (张勋), Wan Guanghua, Fudan University (万广华), Zhang Jiajia, Beijing Normal University and China Finance 40 Forum Think Tank (张佳佳), He Zongyue, Beijing University of Technology (何宗樾)
Publication Date: August 2019

  • The authors investigate how digital financial technologies have promoted financial inclusion in China over the past ten years. Chinese use mobile phones and applications like WeChat and Alipay to facilitate most transactions, including shopping, dining, and paying utility bills (including when residents do not have credit cards), the authors note. This creates a digital credit record, which has facilitated their ability to borrow through specialized microlenders like Ant Financial, including for the more than 460 million Chinese without People’s Bank of China credit reports. The authors used data from the China Family Panel Studies and Peking University-Ant Financial Digital Financial Inclusion Index for their research.

  • The authors conclude that these technologies have significantly contributed to narrowing the urban-rural financial divide. These technologies have developed at rates faster in underdeveloped regions, which has also significantly increased household incomes in those regions (but not in urban areas, they note).

  • Digital finance technologies have also significantly increased rates of entrepreneurship among rural residents (less so among urban residents). Among those that used digital finance technologies to start a business, the authors noted that those entrepreneurs tended to be more educated. On the other hand, the authors reported that individuals with higher household net incomes were less likely to become digital finance entrepreneurs.

  • To further close the rural-urban financial divide, the authors recommend policymakers pursue policies that ease expansion of digital financial technologies, especially in China’s West and other rural areas. They also recommend that the government maintain investments in education given the high correlation between digital entrepreneurship and education levels.

Note: Economic Research Journal is published by the government-affiliated Chinese Academy of Social Sciences (CASS). Wan Guanghua is director of the World Economic Research Institute at Fudan University.