How digital finance bridges the gap between coastal and inland economies

Around the world, cities are turning to financial technology as a lever to withstand shocks, drive growth, and create more inclusive economies. From digital banking to AI-powered lending platforms, fintech innovations are redefining how urban systems adapt and thrive in the face of economic volatility and technological change. In this global shift, China stands out as a dynamic case study.

A new peer-reviewed study published in Sustainability, titled “How Fintech Impacts Urban Economic Resilience: A Perspective on the Empowerment of Digital Inclusive Finance” examines how fintech development across 280 Chinese cities is strengthening economic resilience through digital inclusion and smart governance.

Fintech’s Direct Role in Strengthening Urban Economies

The study analyzed data from 280 prefecture-level Chinese cities between 2011 and 2022, combining fixed-effects models, mediation analyses, and heterogeneity tests to isolate the impact of fintech on urban resilience. It found that fintech consistently and significantly boosts urban economic resilience, even after robust checks, including time lags, alternative resilience measures, and exclusion of special cases like provincial capitals.

The authors explain that fintech enhances the resistance, adaptability, and transformation capacity of urban economic systems. By enabling better liquidity creation, risk modeling, and real-time monitoring, fintech empowers banks and financial institutions to anticipate and mitigate financial risks. This ability strengthens overall financial stability and allows cities to withstand external shocks - from economic crises to global disruptions such as the COVID-19 pandemic.

The study further highlights that fintech-driven innovation improves resource allocation and reduces labor mismatches, fostering entrepreneurship and boosting productivity. These structural efficiencies position fintech as a driver of dynamic, adaptive urban economies that are better prepared for volatility.

Digital inclusion as the key transmission mechanism

The study identifies digital inclusive finance as a crucial mediator linking fintech development and economic resilience . Through advanced digital platforms powered by big data, artificial intelligence, and cloud computing, fintech expands the reach of financial services to traditionally underserved groups, including small and micro-enterprises, low-income populations, and residents in remote areas.

The data reveal that this inclusive empowerment narrows the gap between digitally advanced coastal cities and historically underserved inland regions. Digital inclusive finance not only reduces transaction costs but also enables more equitable access to credit, creating conditions for broader participation in economic growth. This democratization of financial access directly strengthens the ability of cities to absorb shocks and adapt to structural changes in the economy.

Moreover, fintech’s role in enhancing digital inclusion promotes social equity, providing a foundation for sustainable development. By bridging the divide between high-tech hubs and lagging areas, fintech ensures that resilience is not limited to a privileged few but becomes a shared economic advantage.

Contextual factors: Infrastructure and governance matter

According to the study, context matters when leveraging fintech for economic resilience. Two moderating factors, the business environment and digital infrastructure, significantly amplify fintech’s positive effects. Cities with robust governance frameworks, strong legal protections, and advanced digital ecosystems are better positioned to translate fintech adoption into measurable resilience gains.

Regions with advanced digital infrastructure benefit from faster, more reliable financial transactions and broader fintech deployment. These capabilities allow cities to sustain core financial operations during crises and accelerate recovery. Likewise, an optimized business environment fosters innovation, reduces transaction costs, and builds investor confidence, further strengthening resilience.

The authors also identify regional and structural differences. Inland cities, often less developed but rapidly digitizing, demonstrate stronger gains from fintech adoption than their coastal counterparts. This advantage stems from what the study terms “leapfrog empowerment,” where fintech bypasses traditional barriers to financial access, enabling rapid and inclusive growth. Similarly, service-oriented cities benefit more than manufacturing hubs because their economies are inherently more dependent on information flows, data-driven operations, and technology-driven innovation.

Policy roadmap for a resilient digital future

Building on their empirical findings, the study offers a comprehensive policy framework to maximize the resilience benefits of fintech:

• Domestic Strategy: Local governments should integrate business environment optimization, digital infrastructure, and fintech through a “Fintech Service Middle Platform.” This unified framework would reduce institutional costs, enhance data flow, and ensure targeted financial support to enterprises, creating a self-reinforcing cycle of economic resilience.

• National Coordination: Policymakers are urged to build a standardized national fintech framework to avoid regional fragmentation, regulatory arbitrage, and inefficiencies in cross-regional data and payment systems. Harmonizing regulations and promoting data-sharing mechanisms will enhance the scalability and safety of fintech innovation nationwide.

• Focus on Service-Led Cities: Cities with service-dominated economies should prioritize integrating technology with tourism, commerce, and cultural industries to drive innovation, boost consumption, and strengthen resilience to economic shocks.

• Global Collaboration: The study calls for greater international cooperation to promote inclusive fintech development. By sharing expertise and adapting technologies to local conditions, global partnerships can ensure that the benefits of digital finance extend to cities worldwide, particularly in developing economies where digital infrastructure and financial literacy remain limited.

The research also acknowledges unaddressed challenges, such as the digital divide and cybersecurity risks. The authors recommend future research to explore these potential vulnerabilities, ensuring that policies aimed at scaling fintech adoption also address systemic risks and equity concerns.