Digital finance and wealth inequality: Evidence from a big tech platform in China during the COVID-19 pandemic

Abstract

Inequality is a longstanding concern, yet how the rapid advancement of financial technology could possibly reshape inequality in the financial market remains unclear. This study analyzes wealth inequality dynamics among Chinese households during the COVID-19 pandemic, using random sample data collected from a quarterly online survey on a big tech platform. Our findings reveal that families with middle-level wealth incurred substantial losses, whereas wealthier families experienced relatively minor reductions in wealth and were able to recover from the situation swiftly. Despite this, our study indicates that digital wealth management, as channeled via major Chinese digital platforms, mitigated the rising wealth inequality triggered by the pandemic. This is presumably because digital finance improves accessibility to assets with lower risks for middle-level wealth groups. Our study has strong policy implications, namely that regulations on digital financial platforms should not underestimate the beneficial impact of digital finance on inequality reduction when balancing innovation and financial stability.