Financial Inclusion in China: Determinants, Implications, and Path Forward

1. Introduction

China has a wide range of challenging problems despite its amazing economic progress. These include issues related to the environment, an aging population, sluggish economic growth, and growing inequality. China also faces threats to its financial stability from its extensive shadow banking system and high levels of debt, particularly in the corporate sector.

China's economy is the largest in Asia and the second largest in the world as of 2023, making it a major role in the international economic scene (Zreik, 2023a). It has made amazing progress in the areas of industrialization, infrastructure construction, and technical advancement in recent decades, and its economic journey is worth emulating.

The late 1970s marked the beginning of China's transformation from a centrally planned to a market-oriented economy, which has been crucial to the country's rapid economic rise since then. The economy grew at a rate of about 10% annually for more than three decades as a result of this shift (Ngok, 2007). Through one of the most extraordinary economic changes in human history, China was able to help hundreds of millions of its citizens escape poverty (Radelet, 2015).

Public and private sectors coexist in China's economic system. The public sector, which includes SOEs, is extremely important in key industries including energy, transportation, and communications. In contrast, the private sector's contribution to China's GDP and employment levels has grown substantially since the reforms were implemented (Wei & Li, 2017).

As the world's greatest exporter and second-largest importer of products, China has also played an important role in international trade (Iqbal, Rahman, & Elimimian, 2019). Its Belt and Road Initiative further indicates its goal to change global trade and investment patterns, and it plays a crucial role in key global value chains (Zreik, 2021).

When people and businesses are financially included, they have access to a variety of appropriate financial goods and services that are both inexpensive and accessible. Banking, credit, insurance, pensions, and other financial services are all essential to a thriving economy and are included here.

Financial inclusion, at its foundation, is the belief that all people, regardless of their socioeconomic status, should have access to and be able to make good use of suitable financial services (Lyons & Kass-Hanna, 2021). Since it allows people to take part in the market, launch ventures, amass assets, moderate their spending, and manage their risks, it is an essential tool in the fight against poverty.

There are many facets to financial inclusion. The first is access, or the ease with which low-income and disadvantaged people can gain access to a variety of financial services. The second indicator is “usage,” which measures how often and for what purposes people employ monetary services. Last but not least, we have quality, which refers to supplying consumers with financial services that are tailored to their specific requirements and given in a way that enhances their financial literacy and empowers them to make educated choices (Van et al., 2021).

It's important to remember that financial inclusion involves more than just getting people to the bank; it also involves making sure they have the information and resources they need to make sound financial decisions. Mobile banking, e-wallets, and other fintech developments have expanded the definition of “financial inclusion” beyond the realm of “traditional banking channels” (Krishnan, 2014).

As one of the world's most important economies, China deserves a thorough examination, and that's what this chapter aims to do. Given its significance in promoting sustainable development and lowering poverty and economic disparities, financial inclusion has become a hot topic around the world. In light of the specific economic, social, and political conditions in China, this chapter seeks to add to the broader discourse on financial inclusion by analyzing this case study.

To provide a foundational understanding of the factors affecting financial inclusion in China, an examination of various indicators of the country's economy has been undertaken. Following this, the concept of financial inclusion is elaborated upon, clarifying its definition and elucidating its significance within contemporary economic and social frameworks.