Financial Inclusion in China: Use of Credit

Abstract

Limited access to credit can cause financial vulnerability for a household and economic loss for a country. Previous studies have shown that only small portions of populations in developing countries use formal credit, but few studies have focused on Chinese populations. Analyzing data from the 2011 China Household Financial Survey, this study explored Chinese households' credit use. Over half of the sample (53.21%) reported using credit, and only 19.77% of the sample used formal credit. Use of formal credit was associated with the socioeconomic characteristics of household heads (e.g., employment and education) and of households (e.g., income and net worth). The findings suggest that promoting financial inclusion in China involves expanding access to formal credit among socially and economically disadvantaged households.

Impacts of Financial Literacy on the Loan Decisions of Financially Excluded Households in the People's Republic of China

“…For consumers living in rural areas, the lending options (especially from formal financial institutions) are likely to be more limited. Yet there can still be value in raising their awareness about the availability of credit, how a loan works, and how formal credit can be obtained from a bank, including the loan application process (Chen and Jin, 2017). An understanding about the risks associated with informal borrowing and how to avoid frauds, financial rip-offs, and unethical lending practices is also valuable.…”

“…Only a few studies have investigated the factors that determine financial inclusion in the PRC within the context of credit usage (e.g., Chen and Jin, 2017;Fungáčová and Weill, 2015;Li, Gan, and Hu, 2011). Fungáčová and Weill (2015) used data from the 2011 World Bank Global Findex database to compare financial inclusion in the PRC with the other BRICS countries (i.e., Brazil, the Russian Federation, India, the PRC, and South Africa).…”

“…While they found higher levels of financial inclusion in terms of formal account usage and savings, the usage of formal credit was significantly less frequent in the PRC relative to the other economies. Chen and Jin (2017) used data from the 2011 CHFS to investigate the socioeconomic determinants of Chinese households' formal and informal usage of credit. This study was primarily exploratory in nature.…”

“…Therefore, one might conclude that financial inclusion is not a major problem in the PRC (Fungáčová and Weill, 2015). However, the PRC's formal credit markets have not kept pace with economic growth and have remained largely underdeveloped (Chen and Jin, 2017;Sparreboom and Duflos, 2012). Formal credit in the PRC is still mainly directed towards large state-owned enterprises and rarely targets the credit needs of individuals (Chen and Jin, 2016).…”

Dual Credit Markets and Household Usage to Finance: Evidence from a Representative Chinese Household Survey

“… Chen and Jin () also examine the usage of formal and informal credit by Chinese households, using the smaller CHFS 2011 sample. Those authors do not, however, examine the roles of party affiliation and private social networks in facilitating access to finance, nor do they consider the prevalence of interest‐free loans in informal finance. …”