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China’s digital financial development narrows digital divide

ZHANG XUN, WAN GUANGHUA, and WU HAITAO | 2021-09-23 | Hits:
(Chinese Social Sciences Today)

The proliferation of digital payments with the e-CNY may alter people’s living habits. Photo:CFP

With the advancement of the fourth technological revolution marked by 5G, big data, and artificial intelligence, the social production mode is entering a new period featuring the digital economy. From the supply side, digital industrialization and industrial digitization are changing the mode of production. From the demand side, through enabling consumption, digital technology has made great changes in people’s production and lifestyles. 
China’s effective prevention and control of the spread of COVID-19 is closely related to the role of digital technology. New industries, new types of business, and new business models based on digital technology, such as online conferences, cloud offices, cloud education, and cloud training, show strong resilience and vitality. The use of health codes and travel codes and the popularity of online shopping make it possible for the government to expediently block the spread of COVID-19 and maintain the normal life of residents.
Digital finance is the most important part of the digital economy. The development of digital finance has reduced the financial access threshold; improved the inclusiveness, convenience, and cost performance of financial services; and promoted innovation and entrepreneurship, especially by alleviating financing constraints. In addition, the development of digital finance helps to ease credit constraints and smooth inter-temporal consumption. 
At the same time, the popularity of mobile payment platforms such as Alipay and WeChat Pay has greatly improved the convenience of payment, reduced the cost of shopping, and sped up the circulation and the efficiency of exchange. These can boost residents’ consumption and even alter residents’ consumption habits. In short, the development of digital finance is of indispensable significance for deepening the supply-side structural reform, giving full play to China’s super-large market advantages and domestic demand potential, and fostering the new development paradigm with domestic circulation being the mainstay and the domestic and international circulations reinforcing each other.
Digital divide
Marxist theory of commodity circulation holds that the dual functions of the circulation industry include the value generation process that maintains production and the value realization process realized through the medium of exchange. The former is productive labor and the latter is the necessary medium of labor for commodity circulation. Relying on efficient data collection, transmission, and algorithm systems, the digital platform shortens the circulation time by combining the dual functions of circulation, so that the production, distribution, exchange, and consumption activities can achieve integration beyond time and space, so as to improve social productivity.  
With the development of the digital economy and digital finance, the global digital divide has attracted much attention. There is an urgent need to curb the expansion of the digital divide and its negative impact. In 1990, futurist Alvin Toffler proposed that the “digital divide” would bring about a new “powershift.” The digital divide is caused by the great imbalance in the interval transmission of information technology development, which leads to differentiations between large countries, especially developed and underdeveloped countries, and creates the “information rich” and the “information poor” within countries. Under the conditions of the market economy, without strong government interventions, the development of the digital economy and digital finance will spontaneously produce and expand the digital divide and aggravate the social polarization between the rich and the poor. The digital divide has become a new phenomenon among the rich and poor in the contemporary world. The economic level (including urbanization and per capita GDP), the imbalance of information infrastructure, and education levels, are important factors in the formation of the digital divide. 
The research on the digital divide at home and abroad is mainly quantitative analyses. The digital divide can be categorized into two types: the first refers to the accessibility of information, which is usually measured by whether to use or connect to the internet. The secondary digital divide refers to the ability to use, appreciate, and discriminate internet information.
As far as China is concerned, due to regional differences in digital technology, relatively developed regions such as the southeastern coast can benefit more from digital dividends, resulting in increased regional income inequality.
China’s digital divide may widen the income and consumption gap among families. This presents an important and yet not fully studied issue: given the serious digital divide, can the development of digital finance restrain the expansion of the digital divide and its negative effects? If we can narrow the gap, what is the transmission mechanism behind it and what are the risks? The development of digital finance can produce spillover effects and indirectly improve the availability of financial services for groups unable to access the internet. Furthermore, the development of digital finance helps to promote regional economic growth, so as to benefit households or individuals who cannot access the internet.
Flourishing digital finance  
As the world’s largest developing country, China sees a lower internet penetration rate compared with developed economies. As of December 2020, 29.6% of the Chinese population had no access to the internet, and even more people could not use the internet, especially in rural areas. 44.1% of rural families had no access to the internet. However, the internet penetration rate has increased rapidly, from 53.2% in 2016 to 70.4% in 2020. 
Upholding the Chinese socialist system, the country sees particularities, compared with the general situation in the world, in terms of the impact of the digital divide and how to fill the gap. China has enabled more and more low-income groups to access the internet through large-scale information infrastructure construction, effectively controlling the expansion of the digital divide. According to data released by the Ministry of Industry and Information Technology on May 14, 2021, China has built more than 819,000 5G base stations, accounting for 70% of the world supply. The connection of 5G mobile terminal users has reached 280 million, accounting for more than 80% of the world total. This fully reflects the strengths of China’s socialist system at rapidly increasing the supply of public goods on an extraordinary scale.
Furthermore, China has reduced the digital divide by promoting the healthy development of digital finance and giving full play to the spillover effect. This is particularly prominent in rural poverty alleviation, which is the basic task of building a moderately prosperous society in all respects. The collective economy in rural China makes it possible for farmers who cannot access the internet to carry out e-commerce activities through the facilities provided by the postal system and cooperatives, which has restrained the expansion of the digital divide and its negative impact. In particular, with the implementation of the targeted poverty alleviation policy, remarkable progress has been made in internet-based rural poverty alleviation. By the end of 2020, the telecommunications department had opened optical fiber networks in more than 130,000 administrative villages and smoothened “last kilometer” of communication in poor areas.  On the basis of state-owned and collectively owned land in China, the government can promote the development of digital finance from both sides of supply and demand through land planning, and strengthen its long-term effect of restraining the digital divide and its negative impact.
Narrowing regional divide
The role of digital financial development on income and consumption are the focus, with particular attention to the narrowing of the digital divide. By analyzing the data of the China Family Panel Studies (CFPS), it is found that the emergence of the digital divide has indeed widened the income and consumption gap between residents in China, but the development of digital finance has brought a significant increase in residents’ income and consumption, especially for those families who have no access to the internet. This proves that the development of digital finance helps to curb the expansion of the digital divide. Further analysis shows that for rural families who have no access to the internet, digital finance mainly promotes the transformation of an agricultural employment structure to a non-agricultural employment structure. This brings the improvement of wage income and agricultural operating income, so as to promote consumption and increase domestic demand. Therefore, guiding the healthy and orderly development of digital finance is an important measure for China to gradually overcome the unbalanced and inadequate development, revitalize domestic demand, smooth the domestic and international dual circulations, and meet people’s ever-growing needs for a better life.
Residents’ income, consumption, and access to the internet are the three most important variables in the CFPS data. Residents’ income and consumption variables are from family questionnaires. In order to reflect the digital divide, the data pertaining to the access to the internet in adult questionnaires were selected as the proxy variable. As long as one family member can have access to the internet, it is accepted that the family can access the internet. The internet coverage rate during the sample period was 52.3%. The CFPS questionnaire contains a survey on the “importance” of the internet as a channel for information acquisition. When the answer is “very unimportant” it can be concluded that the family is facing a secondary digital divide.  
At the regional level, in order to characterize the impact of digital financial development on residents’ income and consumption, Digital Financial Inclusion Index of China is referred to. It is built based on the big data of trading accounts, which is quite representative and reliable. The analysis based on the index shows that China’s digital finance has developed very rapidly, and the development of central and western regions has accelerated significantly in recent years, which reflects the inclusive development of digital finance, signifying that the digital divide at the regional level is narrowing.
Zhang Xun is an associate professor from the School of Statistics at Beijing Normal University, Wan Guanghua is a professor from the Institute of World Economy at Fudan University, and Wu Haitao is a professor from the School of Business Administration at Zhongnan University of Economics and Law.



Edited by ZHAO YUAN