I. Practices, achievements and impact of the first strategic planning

In 2013, inclusive finance was incorporated into a national strategy, and the Plan for Advancing Inclusive Finance Development (2016-2020) launched at the end of 2015 outlines a master plan guiding the development of inclusive finance. Thanks to the strong support from the national level, inclusive finance has achieved remarkable development over the past five years. In particular, the Central Committee of the Communist Party of China (CPC) and the State Council have emphasized its importance in promoting many key strategies including Rural Revitalization, Integrated Urban-Rural Development and Strategic Emerging Industries (SEIs).

The People’s Bank of China (PBoC), China Banking and Insurance Regulatory Commission (CBIRC), China Securities Regulatory Commission (CSRC) and local governments have achieved notable progress in innovating financial inclusion systems, policies and mechanisms. Large and medium-sized banks, small banks, Internet banks, policy banks, the insurance industry and securities work jointly to deepen the supply-side structural reform in the financial sector, develop a multi-level capital market, and create a more inclusive financial system. In addition, the China Academy of Financial Inclusion (CAFI) at Renmin University of China together with other members of the civil society is actively participating in the research and practice of inclusive finance, creating an inclusive finance-based think tank and exchange platform to optimize the financial inclusion system.

During the 13th Five-Year Plan, China’s inclusive finance has scored world-leading achievements, providing better services to more fields. In particular, large, medium and small-sized banks all take part to ensure the full coverage of basic financial services in urban and rural areas; with the support of fintech, China has taken the lead in digital inclusive finance worldwide, and accumulated experience in developing inclusive finance reform pilot zones; infrastructure has been improved, and policy and indicator systems are taking shape; the concept of inclusive finance are increasingly popular.

Inclusive finance has shown great potential in promoting socio-economic development. China’s inclusive finance has made a significant contribution to the elimination of absolute poverty and regional poverty, and thus accelerated the global poverty relief progress. It helps MSEs to sustain their businesses during the pandemic. It facilitates the rebalancing of the financial structure and sustainable socio-economic development. We are pleased to see that inclusive finance not only promotes financial stability (and vice versa) but also has made a notable contribution to the international exchanges of best practices and to international governance.

II. Inclusive Finance Reform Pilot Zones

Innovation of financial inclusion-related reforms on multiple fronts. Since 2008, inclusive finance-related reform pilot zones have been developed into six types: rural finance reform pilot zones, urban cluster finance reform pilot zones, financial service reform and innovation pilot zones for MSEs, inclusive finance reform demonstration zones/ pilot zones, pilot counties of the Financial Inclusion Global Initiative (FIGI), and reform and innovation pilot zones for finance-supported industrial transformation and upgrading, and have accumulated valuable experiences for replication.

Major innovations of the pilot zones:

1. Revitalizing property rights of MSEs to help them obtain financing support and property income.

2. Innovating service models and products.

3. Integrating diverse service ecologies.

Mechanisms of the pilot zones:

1. Improving the risk prevention and control mechanism.

2. Protecting the rights and interests of financial consumers and maintaining financial stability.

3. Creating a development monitoring index to advance the reform.

We summarized major experiences of financial inclusion-related reforms in the following four aspects.

First, a facilitating government and consistent policies. The government needs to be proactive in areas such as building financial infrastructure, fostering a financial environment, and addressing market failures while keeping reform policies consistent.

Second, the fair price and effective allocation of factors. The premise of effective market allocation is that the value of factors is transparent, and the prices of factors are fair. The inclusive finance reform needs to promote the convergence of the prices of market factors (e.g., data, credit, and property rights) to their value while exploring the revaluation of traditional factors such as manpower and boosting the motivation and creativity of talent teams.

Third, the multi-level financial market and benign competition. We should avoid market distortion by well-intentioned financial inclusion policies, and guide market entities to foster strengths, circumvent weaknesses and find their positions so as to promote the enrichment and improvement of the financial structure and the long-term resilience of the financial ecology.

Fourth, customer-centricity and combining integrity and ability. Financial inclusion services providers should always be customer-centered. Only when they are visionary, responsible, and proficient with fintech and other technologies, can they continuously optimize and create products and services.

III. The development, status quo, and prospects of the bank-card withdrawal services for rural residents

Over the past five years, China’s inclusive finance has achieved huge success in rural areas, which has wowed the world.

To unleash the rural economic vitality and develop the rural financial market, PBoC is to disseminate the success stories of creating cash-out points for rural users through rural agent-based service centers nationwide and transform them into rural inclusive finance service stations. Regional imbalance is an outstanding problem in the development of cash-out points: developed areas have upgraded the cash-out points into stations while less-developed areas are yet to develop their cash-out points.

In the meantime, the rural inclusive finance service stations in developed areas need to explore the following aspects. First, they need to explore the relationship between the government and the market; second, they need to explore inter-departmental cooperation; third, they need to explore how to delegate authorities of the banks to service stations. This also raises challenges to financial stability and issues that whether commercial banks or local primary autonomous organizations should have the final say in selecting service personnel.

Therefore, developed and less-developed areas need to adopt policies (concerning development layout, policy support and policy regulation) commensurate with their development stage and keep optimizing the layout. We can promote benign development by establishing training and regulatory mechanisms, promote data flow by working with financial and technology companies and facilitate rural production and operation by enriching functions and products.

IV. The role of digital technology in the development of inclusive finance

In the past five years, China's digital financial inclusion has achieved leapfrog development, profoundly transforming our ways to produce and live and the economic structure.

First, China leads the world in digital payment applications, which has promoted a thriving digital economy.

Second, digital credit is increasingly mature, and digital transformation in the banking industry becomes the norm.

Third, Internet finance keeps expanding, with increasing online insurance and wealth management. Insurance technologies and asset management technologies have penetrated into the middle and back offices.

Digital technology becomes a key force in driving the development of inclusive finance.

Digital technology improves service efficiency, lowers channel and information costs, and creates more financial services close to the demand scenarios, thus diversifying clients’ investment risks and improving the risk control of financial institutions. It covers more long-tail clients and has enriched the hierarchical structure of the financial market.

Digital platforms as a facilitator in the development of inclusive finance.

By reducing transaction costs and information asymmetry, digital platforms have pushed the transaction boundaries of inclusive finance, created new transaction momentum, and formed coopetition with traditional financial institutions, thus facilitating the development of financial institutions.

Ⅴ. The evolution, mechanism of action (MOA) and utility analysis of financial inclusion policies

The significant progress in financial inclusion is attributable to the formulation, introduction, and implementation of a series of policies. The regulation is gradually tight; monetary policies have become more targeted; the mechanism design puts more emphasis on the decisive role of the market; management of risks of various financial innovations and systemic risks is increasingly improving.

As the recipient of financial inclusion policies, local governments can assist in the implementation of central policies in three areas: local financial contributions, local administration, and local institutional reform. The financial inclusion gap among localities is mainly due to the financial contribution capacity and priority setting of local governments.

As the provider of financial inclusion services, large state-owned banks began to engage in inclusive finance in response to the national policy. As they have acquired high-quality clients, small and medium-sized banks are pressed towards smaller cities and rural areas. Being subject to PBoC’s monetary policies and macro-prudential policies, and the intervention of local governments and financial authorities, small and medium-sized banks have to keep tapping and cultivating the local inclusive finance market, thus benefiting those who used to be underserved.

In the meantime, due to the decentralization of financial inclusion and the capital it provides, some profit-seeking capital takes advantage of the distortion and policy dividends. Since powerful entities have more bargaining chips than SMEs, profit-seekers may find ways to reap policy dividends, even if the imbalance of supply and demand of financial resources and services are corrected by administrative means. Therefore, financial resources cannot sink to the bottom market as expected. Inclusive finance aims to eliminate the original inequality, but the question is how to reach the target group precisely.

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