Stratified financial inclusion in China based on hukou and its interaction with city and province development

Financial inclusion (that is, access by individuals to the services provided by financial institutions such as banks, insurance, and investment firms) is a key condition for economic development, and forms one of the principal policy instruments in China for the promotion of rural-urban integration. Using data from the China Household Financial Studies (2013), this paper investigates the determinants of financial inclusion at the household level in China. Focused on the role of the Chinese household registration system (hukou), this paper proposes a new hukou typology to investigate the composite index of financial inclusion as well as the six indicators. Multilevel estimates reveal substantial differences of financial inclusion among different hukou holders; significant cross-level associations between hukou and economic development is also found, revealing the complex and non-linear relationship between hukou and financial inclusion. These findings shed light on the potential for market failures and two types of discrimination based on hukou system, which deny access to financial services to groups of people. Research implications on how to increase financial inclusion are mentioned and discussed.