CAREC Institute Contributes to China's Digital Finance and Green Growth Policy Debate

24 May 2023

On May 24, Dr. Asif Razzaq, Senior Research Fellow of the CAREC Institute, spoke at the China-Shanghai Cooperation Organization Digital Technology Cooperation and Development Forum hosted by the Ministry of Industry and Information Technology of the People’s Republic of China in Karamay, Xinjiang. The forum was aimed at developing cooperation in the field of digital technologies between the member countries of the Shanghai Cooperation Organization. The participants discussed the development of the digital economy, digital low-carbon energy, digital infrastructure, digital culture, the use of digital technologies and big data.

Dr. Asif Razzaq’s presentation was on “Uncovering the Intersection of Digital Finance and Green Growth in China using Big Data.” He talked about how digital finance drives green growth and how this relationship differs across regions in China. He mentioned that green growth is an imperative institutional guarantee and essential underpinning for transforming a crude economic growth model and realizing the green development agenda. It can bridge the link between the “economy” and the “environment” and decouple economic growth from ecological hazards. China adheres to the practice of green growth in various fields and has achieved certain results. At the same time, financial resources are a determining factor in empowering the green economy towards green growth. And digital finance, enhanced by digital technologies and integrated with traditional financial industries, expands financial inclusion, and contributes to the efficient allocation of financial resources and the achievement of equitable development.

He shared the results of his latest research revealing an inverted-U relationship between inclusive digital finance and green growth in China. The marginal effect of digital finance development is highest when green growth is low-medium and decreases when green growth is high. This suggests that with high green growth, the financing structure, channel, and amount are already developed and saturated. Digital finance has positively impacted green growth in China by reducing energy poverty and improving the digital transformation of enterprises. A significant positive effect of digital finance is observed in the eastern and central regions and to a lesser extent in the western region, due to the abundant and concentrated resources, technical capabilities and environmental protection mechanisms that facilitate this connection in the developed eastern and central regions. The Western region is underdeveloped, and its level of market economy development is lower, which limits the role of digital finance in promoting green growth.

Based on his research, Dr. Asif Razzaq recommends further promoting the deep integration of digital technology and financial business and strengthening digital finance oversight to ensure the efficient operation of digital financial services in a green economy. Local governments should consider and internalize the impact of the digital financial channel to reduce energy poverty and increase the digitalization of enterprises. Funding should be directed towards clean and sustainable technologies, research and development, and corporate products to optimize energy development efficiency and use efficiency. The digital finance development model, supported by digital technologies, with the participation of various financial actors, should be widely promoted to strengthen the role of digital finance in enhancing green growth opportunities. Public-private partnerships are needed to strengthen digital infrastructure in less-developed regions and to develop fintech companies. Underdeveloped regions should use the experience of developed regions in building digital finance and digitalization of local enterprises. It is also necessary to reform the financial supervision system in line with the latest developments and establish a scientific risk management system to maximize the positive impact of digital finance on green growth.

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