Digital Financial Inclusion and Income Inequality in China

IMF Working Papers, April 4, 2025

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Higher levels of digital financial inclusion, measured by the Peking University digital financial inclusion index, are associated with significantly lower income inequality within provinces.
The within-province reduction in inequality operates in part through larger positive effects on lower-income households’ incomes from salaries and public and private transfers.
No significant impact of digital financial inclusion on income inequality across provinces was found; households in the relatively more developed southern region benefitted more from digital financial inclusion than those in the northern region.
Digital financial inclusion has larger effects on the incomes of:
- rural households,
- female-headed households,
- less educated households.
Digital financial inclusion has a smaller effect on the income of elderly households, indicating a “digital divide” problem among the elderly in China.

The analysis combines macro-level and household-level data, using the Peking University digital financial inclusion index as the measure of digital financial inclusion.
Micro-level results highlight differential income channel effects: salary income and transfer income are key channels through which lower-income households benefit.

Within-province inequality: significant narrowing associated with greater digital financial inclusion.
Across-province inequality: no significant effect detected, reflecting uneven benefits—greater gains in the southern region relative to the northern region.
Population subgroups with larger income gains from digital financial inclusion: rural, female-headed, and less educated households.
Population subgroup with smaller income gains: elderly households (digital divide).

Policies that expand digital financial inclusion can help reduce within-province income inequality by raising salaries and transfer incomes for lower-income households.
Targeted measures are needed to address regional disparities so that northern regions can capture benefits similar to the southern region.
Interventions to close the digital divide for the elderly are important to ensure inclusive gains from digital financial inclusion.
Complementary policies may be warranted to amplify benefits for rural, female-headed, and less educated households while addressing barriers for groups that benefit less.

Source: IMF Working Paper “Digital Financial Inclusion and Income Inequality in China”, April 4, 2025; Working Paper No. 2025/071; Pages: 35.