Exploring the Relationship between Digital Inclusive Finance and Traditional Finance in China

Abstract

Since 2016, China has incorporated the development of digital inclusive finance (DIF) into its national strategic plan and supported it with favorable policies. These policy changes not only promote the sustainable development of finance but also provide an opportunity to examine the relationship between DIF and traditional finance. This study utilizes panel data from China's prefecture-level cities spanning 2011 to 2019 and employs the generalized difference-in-difference method to analyze the impacts of relevant policies. The findings indicate a positive correlation between the level of traditional finance and the successful implementation of policies that promote DIF, suggesting a complementary relationship between traditional finance and DIF. Additionally, analysis reveals that in regions with more favorable financial and technological conditions, traditional finance plays a prominent supportive role in facilitating DIF. Therefore, policies promoting DIF should consider local financial and technological landscapes while developing tailored strategies based on the maturity level of traditional finance.