Bridging and Dividing: The Dual Effects of Digital Inclusive Finance on Income Inequality in China

The rapid expansion of digital inclusive finance (DIF) in China offers substantial potential to advance common prosperity by broadening access to credit and lowering barriers to financial services. However, the distributional consequences—both between rural and urban areas and within regions—remain insufficiently understood. Using data from the China Household Financial Survey (CHFS) and DIF indices over the period 2011–2019, this paper investigates the effects of DIF on urban–rural income disparities and intra-regional income inequality and explores the underlying mechanisms. We find that DIF significantly narrowed the urban–rural income gap while simultaneously exacerbating income disparities within both rural and urban areas. The reduction in the urban–rural divide was mainly attributable to disproportionate benefits accruing to rural households, largely through increases in agricultural income. In contrast, the widening of intra-regional income disparities is predominantly due to DIF's stronger influence on middle- and high-income groups, particularly those with higher levels of education. These findings highlight the dual-edged nature of DIF in influencing income inequality and highlight the need for targeted policy interventions to promote a more equitable benefit distribution.