Digital technology and financial capital

The ongoing technological revolution, underpinned by digital technology, is fundamentally transforming the way capital operates. Driven by emerging technologies such as big data, cloud computing and artificial intelligence (AI), various types of capital have undergone significant changes in their modes of value creation and their corresponding organizational structures. The digitalization trend of capital operations is also becoming increasingly prominent. As one of the dominant forms of capital, financial capital reallocates resources with the support of data as a factor of production and digital platforms. This amplifies the leverage effect of finance while reshaping and supplementing traditional industrial and business operating models. In the pursuit of a higher return on investment, financial capital accelerates its detachment from sectors of the real economy with relatively lower profit margins. Instead, supported by digital technology, it focuses on self-expansion in the virtual economy. This shift, therefore, has led to inefficiencies in the production and circulation of the real economy, alongside increased instability and uncertainty in financial markets. Xi Jinping (2022, p. 30), General Secretary of the Central Committee of the Communist Party of China (CPC), emphasized in the report he delivered to the 20th National Congress of the CPC on October 16, 2022, “We will take stronger action against monopolies and unfair competition, break local protectionism and administrative monopolies, and conduct law-based regulation and guidance to promote the healthy development of capital.” At the Central Financial Work Conference held from October 30 to 31, 2023, Xi proposed that “The Party Central Committee has adapted Marxist financial theory to the specific realities of contemporary China and excellent traditional Chinese culture. It has made great efforts to grasp the regularities of financial development in the new era, continuously promote innovation in practice, theories, and institution in China's financial sector and explore the path of financial development with Chinese characteristics” (People's Daily, 2023a). On January 16, 2024, Xi further stressed that “a country with a strong financial sector should have a strong economic foundation and lead the world in economy, technology and comprehensive national strength. Such a nation should also have a series of key core financial elements” at a study session on promoting high-quality financial development, attended by provincial and ministerial-level leading officials (People's Daily, 2024). Financial capital is one of the essential factors of production in the modern market economy. Its healthy development is indispensable to building China into a financial powerhouse. The above statements outline the direction for understanding the characteristics and behavioral patterns of financial capital and promoting high-quality financial development in this new era. Against the backdrop of the digital economy, a major theoretical and practical question that China must address in this new development phase is: How to correctly understand the new characteristics and regularities of financial capital and further explore the unique development path that integrates financial capital and digital technology in the socialist market economy?

From a macro-history perspective, the technological revolution has dynamically reshaped the relationship between capital and technology, in addition to diversifying the forms of capital. In the process of the technological revolution, financial capital emerged and evolved. Its sequential self-transformation was marked by facilitating the application of thermal technologies, merging with the monopolies of electricity-related technologies and expanding synergistically through its integration with information technology. With the rapid global adoption of digital technologies, such as big data, AI and blockchain, financial capital has expanded its conventional modes of operation based on the dual logic of accumulation, driving integrated innovations in organizational structures, business lines and regulatory frameworks. Financial capital has leveraged digital platforms to enhance its efficiency in participating in the circulation of industrial capital. This is manifested through digitized, intelligent and network-based services for the real economy. Furthermore, digital technology has accelerated the self-circulation of financial capital within the virtual economy, unleashing the inherent dynamism in the growth of financial capital. However, due to the rapid application of digital technology and the lag of relevant regulations and rules, financial capital may also elevate financial risks, leading to practical problems such as monopolistic financial markets, overvaluation of virtual assets and distortions to the real economy. In the face of such changes in modes of capital operation fueled by digital technology, while classical theories of financial capital still possess certain explanatory power, new business models and the socialist market economy have posed fresh challenges.

Since the rise of the digital economy, scholars have interpreted the relationship between financial capital and digital technology from three primary perspectives. First is the theoretical mechanisms through which digital technology reshapes the modes of financial capital operation. Studies have examined the theoretical foundations and practical issues regarding how digital technology influences financial capital from the perspective of the fundamental contradictions of capitalism (Meng and Cheng, 2021; Qiao and Xi, 2019). Second is the developmental logic and concrete patterns of merging of digital platforms with financial capital. Researchers have clarified the intrinsic connection between digital platforms and financial capital in developing socially productive forces by reviewing the historical trajectory and real-world cases of integration between digital platforms and financial capital (Beck et al., 2018; Xie et al., 2019). Third is the potential risk of integrating financial capital and digital technology. Scholars have identified new dynamics in labor-capital relations under digital technology and have proposed policy recommendations based on the changes that digital technology has brought to China's economic and financial landscape (Cui and Cao, 2019; Huang and Tao, 2019). Overall, existing research has enriched our understanding of the relationship between digital technology and capital, particularly financial capital. However, three major limitations still exist. First, most studies have focused on the impact of digital technology on the operation of financial capital, overlooking their interplay. Second, some studies have interpreted China's economic growth based on a logic dominated by private financial capital. These studies have failed to account for China's specific context, characterized by the co-development of public and non-public financial capital. Third, potential pathways to better facilitate the synergistic development of financial capital and digital technology have not been sufficiently explored, and systematic research is needed to provide theoretical interpretations of solutions.

To this end, this paper explores the research question from a political-economic perspective. First, we clarify the relationship between financial capital and technology. The remainder of this paper is structured as follows. Section 2 presents a systematic review of the transition of financial capital from a facilitative to a synergistic role during the technological revolution. Section 3 examines the general characteristics of the synergistic development of financial capital and digital technology at the micro, mesa and macro levels. Section 4 examines the distinctive features of this development in the context of the socialist market economy. Section 5 proposes potential paths to more effectively and efficiently propel the synergistic development of financial capital and digital technology in the new development phase in the face of ongoing challenges. Section 6 concludes with the study's key findings.

The history of technological revolutions vividly illustrates the rise of financial capital – a phenomenon whose meaning and scope have continuously evolved with the times. Throughout this historical trajectory, financial capital has undergone successive transformations in its mode of operation, from promoting the application of thermal technologies to driving the monopolistic integration of electrical technologies and subsequently to the synergistic expansion enabled by information technologies. As new technologies transform modes of production, they simultaneously give rise to and shape the evolution of financial capital. Conversely, in its pursuit of valorization, financial capital drives the iterative advancement of technology. A clear understanding of the dynamic interplay between financial capital and technology under successive technological revolutions is therefore essential for analyzing their contemporary synergy with digital technologies.

In the late 18th and early 19th centuries, the invention and widespread application of technologies such as the steam engine, mechanized textile machinery, steamships, iron smelting techniques and later railways, liberated production from the constraints of human and animal labor. This marked the emergence of a modern mode of production defined by the industrial division of labor and the mechanization of production processes, laying the material foundation for economic growth in emerging industrial nations. The large-scale influx of mass-produced commodities into the market led to the rapid expansion of industry and commerce under capitalism. Meanwhile, the demand for liquidity from industrial and commercial capitalists spurred the emergence of the financial sector, and the early forms of financial capital, such as money capital and interest-bearing capital, gradually played vital roles in production and daily life. To meet the growing funding needs of rapid industrial development and overseas trade expansion, a distinct class of bankers differentiated themselves from industrial and commercial capitalists, thereby initiating a banking system that served the needs of industry and commerce. Banks across regions pooled idle money capital and participated in production and circulation by providing services, such as credit facilities, deposits and withdrawals. They also reduced interest rate differences across regions, gradually establishing a unified credit market. When industrial capitalists were short of funds for purchasing steam engines or mechanical equipment, they could turn to banks for low-interest operating loans rather than to usurers. The vigorous growth of the banking system reduced the cost of capital flow, and the embryonic form of financial capital began to emerge, which subsequently provided crucial support for economic activities such as social reproduction and ocean trade, thus accelerating the widespread use of thermal technologies. Marx (2003a, p. 357) argued, “A portion of industrial capital, and, more precisely, also of commercial capital, not only obtains all the time in the form of money, as money-capital in general, but as money-capital engaged precisely in these technical functions. A definite part of the total capital dissociates itself from the rest and stands apart in the form of money-capital.” This observation reveals the inherent logic behind the emergence of financial capital, reflecting the relationship between its earliest forms and mechanized production driven by thermal power technologies. At this stage, money capital became dissociated from industrial capital, serving mechanized production. At this point, financial capital emerged and became subordinate to mechanized production. Financial capital secured profits by attaching itself to mechanized production, which was mainly funded by industrial capital. In the process of its valorization, financial capital expanded the scale of mechanized production. It promoted the adoption of thermal technologies and paved the way for the next wave of technological revolution.

In the Age of Steam, industrial capital dominated the capitalist economy, while financial capital was an endogenous product of the division of capital in society. Marx (2003b, p. 389) expounded on the characteristics of interest-bearing capital movement: “The first expenditure, which transfers the capital from the lender to the borrower […] The return payment, which again transfers the capital that has flowed back from the borrower to the lender […], which takes place before and after the actual movement of capital and has nothing to do with it as such.” Industrial capital, as the “actual movement” directly engaged in production, merely represented an obligation to pay interest to financial capital in its embryonic stage. “The development of the credit system and the attendant ever-growing control of industrialists and merchants over the money savings of all classes of society, which is effected through the bankers, and the progressive concentration of these savings in amounts which can serve as money-capital, must also depress the rate of interest” (Marx, 2003c, p. 405). Alongside the wider application of thermal technologies, capitalist production at that time shifted from scattered manufacturers to large- and medium-sized machine factories. Modern banks, as financial institutions, merely served as auxiliary forms of capital that met the demands of production and reproduction without controlling the processes of production and circulation.

Since the 1850s, the growing application of electrical and other technologies has accelerated the development of industries, particularly the electric energy industry. The subsequent technological revolution propelled emerging capitalist economies, such as the United States and Germany, to enter the “electrical age.” As capitalist market structures, economic mechanisms and state policies underwent profound transformation, financial capital broke away from its earlier dependence on mechanized production centered on thermal power technologies. It emerged as an autonomous force within the capitalist economy, integrating with the monopolistic development of large-scale industries, such as those based on electrical and petrochemical technologies. After the Age of Steam, the primitive accumulation of industrial capital gradually proved insufficient to meet the funding needs of large-scale heavy industries and massive infrastructure projects, leading to the rapid rise of capital markets and investment banks. Meanwhile, financial capital progressively assumed a central role in production and circulation as it raised vast sums through its financing function. From the late 19th to the early 20th century, the United States drove mergers and reorganizations of industrial enterprises, supported by capital markets and optimized the industrial landscape. As a result, large financial oligopolies, represented by Morgan Financial Group and the Rockefeller family, secured their monopolistic positions in industrial production and financial transactions. While these developments alleviated the extensively expanding industries from capital shortage and accelerated the growth of industrial output, they also led to highly monopolistic markets, overproduction crises and unsustainable economic frenzy. It was in this context that Rudolf Hilferding provided the first systematic exposition of monopolistic financial capital from the perspective of circulation. As he noted, “an ever-increasing proportion of the capital used in industry is financial capital, capital at the disposition of the banks which is used by the industrialists” in the capitalist society of that time (Hilferding, 1994, p. 523). However, this definition does not fully reveal the essence of financial capital. Financial capital arising from the concentration of bank capital was merely a symptom; its substantive formation lay in the concentration and monopolies of industrial production. In this regard, Lenin (1990, p. 632) elaborated, “The concentration of production; the monopolies arising therefrom; the merging or coalescence of the banks with industry—such is the history of the rise of financial capital and such is the content of that concept.”

During the Second Industrial Revolution, the reduction in economic operating costs and the expansion of market boundaries significantly promoted the merging of financial capital monopolies with technological monopolies, resulting in a spiral model in their development. New technologies and emerging industries reshaped the business scope and organizational forms of financial capital. With the extensive application of technological innovations, such as those related to electricity and petrochemicals, the investment and financing activities of financial capital expanded beyond specific regions or individual industries. Instead, they began serving large-scale industrial production across broader markets, which required continuous innovation in financial services to satisfy growing capital demands. Additionally, financial capital fulfilled its financing function by providing capital support for industrial production. In response to the substantial financing demand from industries such as electricity, oil, railways and automobiles, investment banks emerged as intermediaries between capital seekers and investors, gradually securing a crucial position within the financial system. In this process, financial capitalists provided funding for the market expansion and rapid rise of emerging capitalist economies, such as the United States and Germany. However, this also led to the monopolistic operation of financial capital alongside the monopoly of technologies such as electricity. “Imperialism, or the domination of financial capital, is that highest stage of capitalism in which this separation reaches vast proportions. The supremacy of financial capital over all other forms of capital means the predominance of the rentier and of the financial oligarchy; it means that a small number of financially ‘powerful’ states stand out among all the rest,” Lenin (1990, p. 374) noted. It is noticeable that financial capital, taking on an independent form marked by the merging of industry monopolies and bank monopolies, engaged in parasitic accumulation. It extracted monopoly profits through approaches such as technological monopoly.

The invention and use of computers enabled human society to transcend the physiological limitations of the brain and manual labor in terms of calculating speed, information collection and storage. This significantly enhanced the productivity of intellectual labor, and financial capital gradually evolved into capital engaged in financial activities within financial markets (Hoca, 2012). Financial capital, backed by large financial institutions and exhibiting strong characteristics of speculative mobility, began to drive the formation and development of global industrial and supply chain systems. A trend toward globally coordinated expansion emerged as financial capital integrated with information technologies to transform its operational models. This transformation manifested in two key ways. First, financial capital developed a modern venture capital system that financed emerging technologies, such as computer science, nuclear energy, biotechnology and aerospace engineering. Second, the widespread application of information technologies in finance has enhanced the role of financial capital in global industrial and supply chains, providing the technological basis for its international expansion. A notable example is the Nasdaq, launched on February 8, 1971, in response to the rise of the information and service sectors. It introduced a real-time, efficient and regulated trading system, becoming a launchpad for emerging information industries to compete globally. Driven by its inherent profit-seeking nature, financial capital sought not only domestic dominance but also greater returns from economic globalization by participating in global investment, trade and credit based on the international division of labor.

Indeed, the synergistic expansion of financial capital and information-related technologies served the dual objectives of mitigating domestic surplus capital and monopolizing emerging industries worldwide. From the onset of the Industrial Revolution in the 19th century to the 1980s, financial capital played a crucial role in eliminating excess capacity through capital market transactions (Jensen, 1993). As productive capacity grew and the scale of production expanded, private monopolies assumed dominance over social production. By restricting output to sustain high monopoly prices, they distorted price signals and led to rigidity within industrial sectors. These substantial profits, in turn, generated a surplus of capital. Yet the export sector's capacity to absorb and reallocate this surplus through foreign trade was limited. However, the widespread adoption of information technologies enabled breakthroughs in fintech and the development of innovative financial products. This allowed financial capitalists, operating as transnational institutional investors, to expand globally with unprecedented ease, thereby alleviating the crisis of domestic capital surplus. Also, they used equity stakes, lending and other financial instruments to control the reinvestment of industrial capital worldwide while establishing early footholds in emerging industries – thereby consolidating their monopoly over global production.

During the technological revolution, the nexus between financial capital and technology has dynamically evolved, progressively establishing a path of synergistic development. Currently, the new wave of technological and industrial revolution, represented by digital technology, is advancing rapidly. The subsequent economic activities supported by digital information and advanced information networks have profoundly changed the modes of social and economic production. Essentially, the integration of digital technologies has not fundamentally altered the core logic of financial capital accumulation, as financial capital continues to accumulate through a dual mechanism: participation in industrial capital circuits and circulation within the financial system itself. Nevertheless, it is undeniable that financial capital has developed new modalities of value creation, distribution and realization by leveraging digital platforms and data as productive inputs, and it has forged a new logic of synergistic development with digital technology across firm-level operations, sectoral dynamics and macroeconomic systems.

Financial institutions have embarked on digital transformation to adapt to the rapidly evolving digital technology ecosystems. They have interconnected and integrated with digital platforms and AI technologies and overhauled the traditional financial operation methods. Meanwhile, platform companies, whose operations mainly rely on digital technology, have grown significantly with the support of financial capital, launching financial products and services in areas such as consumer credit and virtual currency transactions. Global fintech investment surged from USD 49.1bn (3,581 deals) in 2019 to USD 138.8bn (5,065 deals) in 2021 (China Academy of Information and Communications Technology, 2022). These developments underscore a pronounced trend of synergistic development between financial capital and digital technology at the firm level.

In the digital economy, new business formats and models have emerged, such as online financial transactions and corporate digital services platforms. They have not changed the underlying logic of the dual accumulation of financial capital. Instead, they provide more accessible online venues for financial activities through approaches like big data processing. Platform companies, whose major businesses rely on digital technologies (e.g. big data, cloud computing and AI) and their applications, are backed by financial capital in various areas, such as funding, talent development and operational environments. In the development of digital technology, platform companies have gradually evolved into central entities driving the formation and growth of the ongoing digital economy (Langley and Leyshon, 2017). These platforms, in their early stages, call for the involvement of financial capital, and once platform companies become monopolistic intermediaries, they enable financial capital to accumulate with minimal transaction costs. Financial institutions can acquire a large amount of information about customer identification and profiles at very low or even zero cost. They also employ web technologies to aggregate, screen and select such information, facilitating point-to-point connections between lenders and borrowers. On the platforms, financial product providers can release their offerings, while individuals or organizations can purchase financial products and services. Bound by the safe, fair and efficient rules, both parties achieve effective matching, resulting in a flattened structure for financial transactions. In this regard, the widespread use of digital technology has made the transmission and sharing of information in financial capital accumulation more flexible and transparent. This improvement has broken the constraints of information asymmetry between borrowers and investors in traditional financial institutions, laying a technical foundation for the circulation of diversified financial products or services such as loans, trusts and insurance. Furthermore, enterprises structured around digital platform architectures prioritize usage rights over ownership of means of production and livelihood resources. This characteristic facilitates the efficient utilization of idle financial resources and social funds, thereby mitigating real-world issues, such as surplus capital, declining profit rates and falling interest rates that arise from enterprises' thoughtless production and investment amid information asymmetry.

At the firm level, the synergistic development of financial capital and digital technologies, based on platform enterprises, has helped alleviate the dual crisis of stagnant economic growth and capital overaccumulation. Nevertheless, this process has not altered the fundamental character of financial capital: its role in expropriating the surplus value generated by industrial capital. As monopolistic intermediaries, platform companies have made the exploitation by financial capital more hidden and elevated the parasitic accumulation of financial capital upon brick-and-mortar businesses to a new height. Free access to the Internet and open-source software has attracted a massive user base. The resulting vast amount of user data enables companies with digital resources to extract additional surplus value from consumers through price discrimination. Meanwhile, platform companies are enabled to function as intermediaries that can hire unpaid labor. “As the low-risk investment opportunities in the established paradigm begin to diminish, either in innovation or in market expansion, there is a growing mass of idle capital looking for profitable uses and willing to venture in new directions,” Perez (2007, p. 38) asserted. Empirical evidence suggests that financial capital, facilitated by digital technology, reaches all types of producers and penetrates every sector of economic and social production. As financial capital has gradually gained control over major markets, information and data, it has further strengthened its dominance over industrial capital, compelling industrial capital to relinquish more surplus value.

Fueled by advances in information technology, financial capital has gained greater autonomy, reflecting a growing separation from productive and industrial activities. With the emergence of technologies such as the Internet, big data and blockchain, it leverages digital tools to overcome spatial and temporal constraints, expanding its influence across the entire industrial chain from upstream suppliers to downstream producers. These trends reflect an increasingly symbiotic relationship between financial capital and digital technology.

Overall, digital technology has deepened the virtualization of financial capital accumulation, enabling financial capital to enhance its funding function for the industrial chain through the collaboration of virtualized transaction media, data as a factor of production and information technology.

Firstly, modern information networks provide virtualized transaction media or platforms for the accumulation of financial capital. Idle funds across the upstream and downstream segments of the industrial chain, as well as among different industries, can circulate efficiently through seamless online information communication and financial transactions. Such virtualized trading platforms process commercial data from supply chains online and extend credit to micro-, small- and medium-sized enterprises (MSMEs) based on transaction relationships across the supply chain and asset evaluations. Meanwhile, they heighten awareness among industrial chain participants about the necessity of online credit, thereby promoting the digital transformation of supply chain finance in relevant sectors. Taking “Rong Yi Da” as an example, a flagship supply chain finance product launched by the Bank of China, which provides financing to sellers (namely, upstream SMEs). It occupies the credit line of the buyer (core entities) with the support of online digital information, provided that there is no dispute over the underlying transaction and accounts payable. The fully digital process ensures efficiency and accuracy, providing essential liquidity support for stabilizing industrial and supply chains.

Secondly, digitized knowledge and information have become the foundational elements underpinning the virtual expansion of financial capital. Through high-frequency data processing, financial capital can be rapidly allocated across different industrial sectors. Banks, securities firms, insurers, trusts, funds and other financial institutions are no longer confined to traditional offline businesses. Instead, they have embraced digital transformation. They develop various web applications and operating systems, attracting a large number of users based on the diverse demands of both upstream and downstream segments in the industrial chain. With the proliferation of digital technology, these user datasets have become key factors of production in production and circulation. Their characteristics of zero marginal cost of production and undifferentiated replication enable them to break the constraints imposed by the limited supply of traditional factors of production. Financial capital accumulation can also identify and distinguish specific characteristics of different industries during financial transactions by extracting and utilizing data as a factor of production, which helps develop relevant interest rates, financial products or transaction rules.

Thirdly, information and communication technologies, such as blockchain, accelerate the process of financial capital accumulation by streamlining the processes of clearing and settlement and addressing challenges such as underinvestment. Financial service providers, underpinned by digital technologies such as big data and blockchain, have developed fintech platforms to minimize information asymmetry between borrowers and lenders, thereby establishing solid, trusting relationships within the financial network of the industrial chain (Song et al., 2022). A case in point is the establishment of the Guangdong-Macao cross-border data verification platform, which contributes to the integration of the Guangdong-Macao In-Depth Cooperation Zone in Hengqin. This platform strikes a balance between the need for seamless cross-border services and the protection of customer privacy. Without storing customer information on the platform, it verifies cross-border data for banks at home and abroad, offering crucial information-based support for connectivity within the cooperation zone.

The synergistic development of financial capital and digital technology at the industrial level has substantially reduced the costs associated with investment and financing activities while providing funding support for the digital transformation of sectors. In the meantime, however, the increased efficiency of information processing has accelerated the self-circulation of financial capital. Large amounts of financial resources are thus left unused in virtual financial markets, fueling the ongoing self-expansion of financial capital. As a result, the risk of disconnect between the real economy and the virtual economy arises. In practice, the digital economy has not diminished the speculation and uncertainty of financial capital operations. On the contrary, it has intensified the virtual characteristics of financial capital, deepening its digitization and virtualization and accelerating its expansion within the virtual economy.

At the macro level, the synergistic development of financial capital and digital technology is primarily reflected in its role of driving economic innovation and growth in a country or region. This requires a dual focus: first, on creating new applications that integrate financial capital and digital technology to underpin social stability and macroeconomic growth; second, on prioritizing concerns such as financial capital monopoly amplified by digital technology, as well as regulating and guiding the healthy development of financial capital in accordance with the law.

Financial capital and digital technology jointly propel economic innovation and development, providing vital support for the stability and sustainability of macroeconomic growth. Throughout the process of socio-economic development, each wave of technological revolution has created new industries, new business formats and new business models. Supported and guided by financial capital, emerging industries experience rapid development, while traditional industries undergo optimization and upgrading driven by new technologies, becoming pivotal pillars of regional or national growth. Digital technology has encouraged innovation in financial capital operations, which has directly and indirectly strengthened economic resilience, laying the foundation for sustainable macroeconomic growth.

Regarding the direct effects of their synergy, digital technology has promoted the diversified innovation of financial products and services, strengthened the capabilities of financial capital in financial facilities, risk management and payment and settlement and effectively reduced the time cost of financial activities. When the economic system is subjected to shocks, financial capital can rely on digital technology to respond swiftly, supporting the real economy in adjusting, recovering, innovating and developing. The 2008 Financial Crisis, for instance, indicates that major global banks lacked accurate data and information to analyze their investment portfolios and risk exposure during the turmoil. The digital and intelligent transformation of financial risk reporting can address this vulnerability. Large banks and financial institutions can proactively develop digital infrastructure and governance frameworks, generating forward-looking risk reports through cloud platforms and AI models. In this way, they can identify early on and precisely defend against various risks arising from macroeconomic fluctuations.

As for the indirect effects, the integration of financial capital and digital technology enhances consumer experiences through lower costs, diversified payment methods and flexible and accessible credit services. The subsequent outcomes include the iteration and upgrading of consumption structures, as well as the acceleration of commodity transactions. The fusion of traditional financial services with digital technology has led to digital financial inclusion, characterized by increased accessibility and affordability. All people, regardless of whether they are residents in remote areas without access to financial service points or low-income groups who face relatively greater difficulties in obtaining loans, can access financial services through digital financial inclusion. According to the Institute of Digital Finance, Peking University (2021), China's digital financial inclusion has achieved leapfrog development: the median value of the provincial Digital Financial Inclusion Index surged from 33.6 in 2011 to 334.8 in 2020. Digital financial inclusion enables transactions to be conducted anytime and anywhere, leading to increased demand for consumption and continuous innovation in the business models of the service industry. The reduction in financing costs also stimulates innovation and entrepreneurship among low-income populations, playing a crucial role in promoting inclusive growth.

From the macro perspective, the synergistic development of financial capital and digital technology also requires a balance between risks and innovation. It is necessary to enable financial capital to efficiently empower the real economy through digital technology while driving economic innovation and development, thereby promoting both stable and rapid economic growth. However, under the technological revolution driven by digital technology, governance and regulatory systems adapted to the traditional economy struggle to meet the needs of the rapidly evolving productive forces; the government often finds it hard to implement effective dynamic regulatory oversight over the unfair competition practices of digital platforms and the development of new financial products, which may consequently lead to practical challenges such as the disorderly expansion of financial capital.

In the primary stage of socialism, the coexistence of a market economy and capital relations is objectively determined by China's current level of productive forces. Within this framework, the tendency for financial capital and digital technology to develop synergistically persists under the socialist market economy. However, this integration also takes on distinctive characteristics, particularly in the case of state-owned financial capital. These are evident in three dimensions: First, enterprises jointly built by digital technologies and public financial institutions generate foundational platform effects through institutional synergy. Second, digital technology enables state-owned financial capital to precisely strengthen industrial chains, enhancing industrial-level coordination. Third, digital tools empower public financial capital to stabilize national economic circulation, fulfilling a strategic role in ensuring macroeconomic resilience.

With the deepening of socialist market economy reform, China has developed a complementary structure of public and non-public financial capital. As the dominant force in the financial system, public financial capital prioritizes inclusive development and national economic stability, providing financial support to firms across all ownership types. It leverages digital platforms to serve small and micro-enterprises and support farmers' production activities. Furthermore, supported by digital technology, public and non-public financial capital can collaborate through mixed-ownership financial service platforms, jointly expanding access to financial services.

Under the socialist market economy, the government fully leverages the fundamental and leading role of public financial capital, utilizing digital platforms to support the high-quality development of enterprises and facilitate residents' financial activities. Specifically, public financial institutions, such as state-owned banks, actively participate in constructing foundational platforms, including credit platforms and credit reference platforms. Concurrently, they provide capital and technological support for the high-quality development of enterprises in sectors like power, telecommunications, natural gas, water and railways. With policy support, public financial institutions actively engage in the development of digital platforms, such as credit reference platforms. While driving the development of relevant platform companies and serving the growth of brick-and-mortar businesses, they also fully play the role of digital platforms as infrastructure to achieve precise matching between the financing demand of businesses and the supply of financial products. For instance, China Construction Bank launched a digital services application, “Hui Dong Ni”, to leverage the benefits of financial inclusion. Focusing on corporate financing, growth and ecosystems, the application offers users one-stop, integrated online services. As of the end of September 2023, more than 11.2 million businesses have visited this application and become authenticated users (People's Daily, 2023b).

In addition, backed by electronic trading platforms and wealth management platforms, public financial capital can extend the benefits of financial inclusion to vulnerable groups such as low-income households. Public financial institutions, represented by state-owned banks and publicly offered funds, are rapidly expanding into the Internet finance market. Based on their organizational structures, they establish electronic trading platforms and wealth management platforms, utilize big data analytics to identify the preferences of depositors and borrowers and reduce transaction costs for low-income households and small and micro-enterprises. On April 18, 2022, the People's Bank of China and the State Administration of Foreign Exchange issued the Notice on Strengthening Financial Services for COVID-19 Containment and Socio-Economic Development, stating, “Platform operators are also encouraged to leverage their strengths in customer acquisition, data processing, risk management and technical know-how to increase support for first-time loans and unsecured loans in the field of agriculture, rural areas and rural population and to MSBs” (People's Bank of China, 2022). Therefore, under the socialist market economy, the synergistic development of financial capital (particularly public financial capital) and digital technology has better fulfilled the goal of serving brick-and-mortar businesses. As one of the pivotal forms of this synergy, digital financial inclusion offers innovative ideas and solutions for reducing financial service barriers and transaction costs, enhancing the financing environment for MSMEs and promoting the effective allocation of financial resources in the real economy.

Under socialism, non-public financial capital is also expected to serve the goals of socialist production and national development. Given the high investment requirements and diverse stakeholder needs, the development of core digital financial infrastructure, such as credit platforms, credit reporting systems and wealth management platforms, requires collaboration between public and non-public financial capital. In this context, public financial capital, leveraging digital technologies, can partner with non-public financial capital to build new foundational platforms that support socio-economic development.

The broad-scale application of digital technology has intensified the digitization and operational virtualization of financial capital. In essence, digital tools have facilitated the rapid expansion of financial capital within virtualized financial systems, reinforcing its structural influence over the real economy and raising concerns about the risk of excessive financialization and a shift of capital away from the real economy. Data show that between 2003 and 2021, the financial sector's value-added increased from 4.4% to 7.9% of gross domestic product, while its share of employment among urban workers rose from 3.2% to 4.8% ^[1]. At the same time, supported by digital technology, public financial capital has increasingly directed targeted financing toward upstream segments of industrial chains that demand substantial investment and feature longer return horizons. Through initiatives to strengthen, consolidate and extend industrial chains, thereby enhancing integration and resilience, public financial capital has promoted the coordinated development of enterprises across ownership types. This reflects a distinct development logic: digital technology enables public financial capital to achieve targeted enhancement of industrial chains.

Under the socialist market economy, public financial capital primarily focuses on investments in foundational and upstream segments, actively promoting the digital transformation of industries through digital technology. The aim is to provide better financial services for industrial and supply chains, thereby promoting deep integration among industrial, supply and capital chains. During the reform of China's socialist market economic system, capital allocation has been continuously adjusted and improved, resulting in a distribution pattern where public capital is mainly concentrated in the upstream segment of industrial chains, while non-public capital is predominantly allocated in the midstream and downstream segments. With the increasing socialization of production, industries such as large-scale transportation, energy resources, construction and manufacturing, as well as automotive manufacturing, are facing challenges including extended supply chains, complex production processes and substantial capital requirements. To meet the capital demand across all aspects of the socialization of production, these brick-and-mortar industries with long production cycles have established financial service platforms for their supply chains. They share core operational data with financiers, enabling faster financing processes and more timely risk warnings through the verification of key information related to direct credit extension. In this process, driven by national strategies, public financial capital serves the long-term interests of all people and actively participates in developing these financial service platforms. Leveraging digital technology, it invests in large-scale, long-payback-period foundational and strategic upstream sectors. This not only facilitates more accessible, efficient and secure financing services but also enhances the stability and security of the upstream segment of industrial chains. Thus, the widespread use of digital technology enables public financial capital to provide financial services for upstream and foundational segments of industrial chains, thereby better fulfilling its role in supporting emerging industries in building their industrial chains and assisting traditional industries in extending their own chains.

Additionally, under the socialist market economy, public financial capital leverages digital technology to make targeted investments in strategic segments of industrial chains, enhancing their resilience and security by strengthening and consolidating weak links. Supported by digital technology, public financial capital can overcome geographical constraints and the limitations of traditional risk assessment, delivering affordable and efficient financial services to key industries with lower transaction costs. To address the challenge of commercial viability in strategic sectors, public financial institutions can extend credit to industries that are strategically important with low financial returns. The widespread adoption of digital technology has significantly mitigated longstanding challenges in traditional finance, such as high search costs and inefficient matching, enabling more precise investment in key industries. Leveraging the benefits of digital information technology – such as low replication costs and reduced geographical barriers – public financial capital can conduct efficient credit evaluations for key industries. It can then provide targeted support to enterprises with growth potential and creditworthiness within these key industries, particularly in addressing disruptions and bottlenecks in the industrial chain, to mitigate issues such as inefficient allocation of financial resources. Throughout this process, public financial capital should take on a leading and exemplary role in innovation and addressing critical challenges. For projects of national strategic importance, public financial capital should encourage the active participation of non-public financial capital, leveraging complementary strengths to achieve synergistic development. For projects in competitive and regionally critical sectors, industry leaders with strong innovation capabilities should take the lead. With the joint support of public and non-public financial capital, these leaders should collaborate with upstream and downstream enterprises in their respective industries, as well as relevant research institutions, to address challenges. Such efforts to strengthen and consolidate industrial chains will drive high-quality development of their industries.

At the macro level, the co-development of financial capital and digital technology follows general trends yet also exhibits distinct characteristics. These characteristics are evident in two main aspects. On the one hand, in alignment with national development strategies, public financial capital plays a leading role in driving the application of digital technologies in foundational and frontier areas, aiming to optimize the structure of the state-owned economy. On the other hand, digital technology has transformed the operational model of public financial capital, leveraging the rapid responsiveness of data to underpin the stability of national economic circulation and to mitigate and prevent major risks.

Under the socialist market economy, public financial institutions, supported by digital technology, make significant contributions to the optimization and restructuring of the state-owned economy, driving high-quality economic development. In contrast to the “safety net” function of state capital in capitalist systems, public financial capital in socialist societies plays a leading role in promoting the adoption of digital technology and fostering high-quality growth of the digital economy. It has also initiated strategic approaches for digital technology innovations and their extensive applications. In June 2022, the executive meeting of the state council announced to raise the lending quota for policy banks by 800bn yuan ($116.8bn), along with support for new infrastructure like 5G, industrial Internet and data centers by using policy-backed and developmental financial instruments (People's Daily, 2022). Moreover, under the guidance of public financial capital, non-public financial capital is also engaged to advance innovations in digital technology-enabled products, services and business models, further expanding the depth and breadth of digital technology utilization. In January 2022, the People's Bank of China issued the Fintech Development Plan (2022–2025). The plan outlined key tasks, such as strengthening Fintech governance, enhancing data capability development and deepening the application of digital technology in the financial sector, which aimed to further stimulate the synergistic development of digital technology and financial capital at a macro level.

The adoption of digital technology by public financial capital also plays a critical role in ensuring the stability of national economic circulation and mitigating major risks. In the production sphere, it provides efficient and accessible financial support to ensure the timeliness and continuity of product supply, thereby reducing the risks of underproduction or overproduction caused by information asymmetry. In the circulation sphere, it leverages digital platforms to connect consumers and producers, minimizing market disruptions arising from inefficient commodity flows. In terms of production, digital technology enables public financial capital to make more precise and targeted investments. It can deliver tailored financial support to enterprises of different ownership types, effectively reducing financial risks associated with misaligned investment decisions. In this process, firms upload data from across their production chains, spanning various segments and departments, which enables full data traceability. This allows public financial capital to monitor, manage and track production activities in real-time, significantly improving loan performance and reducing the incidence of non-performing loans. By establishing a foundation of trust and lowering transaction costs through digital tools, public financial capital can extend credit to small and micro enterprises, low-income self-employed individuals and particularly vulnerable groups in underdeveloped regions, thereby better meeting financing needs at the production end. In other words, such targeted investment helps prevent the accumulation of financial risks stemming from credit misallocation in the production process. Regarding circulation, public financial capital's support for foundational digital platforms further enhances the efficiency and resilience of goods circulation. Unlike the traditional operational models and organizational structures within the circulation sector, digital platforms leverage big data to optimize logistics routes and efficiently manage online logistics operations. This enables closer coordination between logistics providers and physical manufacturers, driving a transformative shift in the commercial circulation system. With financial support from institutions, particularly public financial institutions, the emergence of consumer credit and other financial services has expanded the organizational reach of digital platforms. By integrating consumer groups across income levels into the circulation ecosystem, these platforms have fostered a collaborative and mutually beneficial relationship among digital platforms, financial capital, online merchants and offline consumers. This demonstrates that public financial capital, channeled through digital platforms, can directly impact the circulation sector, enabling rapid mitigation of liquidity and credit risks arising from disruptions in commodity flows.

Under the socialist market economy, the synergistic development of financial capital and digital technology has reached new heights, thanks to unique advantages such as its ownership structure and a value orientation that serves the real economy. However, it is undeniable that due to uncertainties in the direction of digital technology advancements, China faces significant challenges in this area. These challenges manifest primarily in three areas: platform monopolies at the firm level, increased virtualization in industrial collaboration and lagging regulation in strategic coordination. As China embarks on its comprehensive journey to build a modern socialist country, it is crucial to adopt a problem-oriented approach, provide differentiated guidance and implement targeted policies. Key efforts should focus on establishing a multi-faceted anti-monopoly mechanism, enhancing dual risk management and control and improving new regulatory frameworks. By doing so, the country can better promote the synergistic development of financial capital and digital technology, ultimately contributing to high-quality economic growth.

Financial capital can monopolize various domains of production and daily life by dominating digital platforms, rapidly expanding itself by expropriating surplus value in production and circulation through its capital power. In the context of the digital economy, rather than overcoming monopoly, financial capital's support for the platform economy has in fact reinforced it – amplified by structural barriers such as data access advantages, network effects and path dependency. Platform enterprises, guided by longtermism, can sustain substantial losses over extended periods to attract users and capture market share, thereby displacing existing firms and establishing monopolistic industrial ecosystems (Kenney and Zysman, 2019). In the absence of diversified anti-monopoly regulation, the oligopolistic structure of the Internet financial market has gradually intensified. This not only poses serious threats to the rights and interests of financial consumers but also raises potential risks to national financial security. On February 29, 2024, the State Administration for Market Regulation (SAMR) held its 2024 Anti-Monopoly Work Conference, emphasizing the need to “strengthen antitrust oversight of Internet platforms to promote orderly competition and innovation-driven development within the platform economy” (State Administration for Market Regulation, 2024). These measures provide strong support for facilitating the rational and efficient allocation of production factors and accelerating the construction of a unified national market. Under the socialist market economy, financial capital's support for the establishment and development of platform enterprises still exhibits monopolistic tendencies aimed at capturing greater market profits, which is driven by the inherent logic of capital valorization in market economies and remains the core challenge facing the firm-level synergistic development of financial capital and digital technology in contemporary China.

Given that monopolistic platform enterprises often operate across industries, regions and domains, it is imperative to strengthen antitrust regulation of Internet platforms. This requires a shift from static, single-dimensional regulatory models to dynamic, multi-dimensional governance frameworks. Specifically, financial regulators, data monitoring agencies and antitrust enforcement authorities should collaborate through a coordinated governance mechanism to regulate improper conduct and unfair competitive practices of financial capital. Antitrust oversight of platform enterprises should not be the sole responsibility of any single agency. Instead, central and local regulatory bodies overseeing finance and the digital industry, together with antitrust enforcement agencies, must clarify their respective roles, enhance coordination and establish a multi-agency, cross-regional antitrust coordination mechanism. The core of building such a mechanism lies in enabling each functional regulator to identify monopolistic behaviors within its domain, thereby fostering an integrated governance model that brings together government, market actors and civil society in a collaborative manner.

As financial capital takes diverse forms in the socialist market economy, the design of the antitrust coordination mechanism must account for these differences, aiming to guide public financial capital toward becoming stronger, better and larger, while supporting the healthy development and expansion of non-public financial capital. On one hand, efforts should be made to advance the digital transformation of state-owned financial institutions and enterprises, enabling the effective utilization of massive datasets on public digital platforms for financial transactions. At the same time, financial and data regulators must conduct real-time monitoring of micro-entities, such as public digital platforms and internet-based financial service providers, to assess user privacy protection, data security and potential anti-competitive practices. Findings should be promptly reported to antitrust authorities in accordance with competition rules, facilitating a collaborative, secure and sustainable antitrust regime. On the other hand, competition rules in digital finance must be improved to promote orderly competition and innovation among platform enterprises. In advancing the development of a unified national market, China should fully implement the fair competition review system, refine antitrust regulations and institutional frameworks in the digital finance sector, encourage compliant operations by platform enterprises, stimulate market vitality and ensure a level playing field for market participants of all ownership types. Moreover, it is essential to strengthen assessments of the competitive environment in the Internet finance sector and across regional markets, ensure the orderly alignment of domestic antitrust rules with international standards and strengthen international exchanges and practical cooperation in antitrust enforcement.

Driven by financial innovation and digital technologies, the spatial dimension of financial capital circulation has expanded beyond traditional physical and geographical boundaries into virtual cyberspace and social networks (Zhang, 2022). The application of digital technology has improved the efficiency of capital flows, enhanced information sharing and reduced transaction costs in financial activities. However, given capital's inherent profit-seeking behavior and the high returns generated through self-reinforcing cycles, the convergence of financial capital with digital platforms may also trigger sustained asset bubbles in investment and financing. Amplified by uncertainties in asset valuation and speculative behavior, this trend risks severing the link between finance and the real economy, accelerating the phenomenon of capital diversion from the real economy. Fueled by speculative capital, certain digital industries and associated concepts have been excessively hyped, resulting in inflated valuations for some listed companies. Consequently, financial markets are increasingly prioritizing information manipulation and market sentiment over the operational performance of companies in the real economy, thereby undermining the fundamental role of finance in supporting the real economy. Moreover, illegal financial activities, such as unlicensed cross-border online brokerages and cryptocurrency speculation, continue to proliferate. There is an urgent need to strengthen effective control over financial risks at their source.

To address this issue, governments at all levels must strengthen dual-track risk governance across the financial and digital technology sectors in the new stage of development. This requires not only mitigating uncertainties arising from rapid technological change but also containing the heightened financial fragility caused by capital's detachment from the real economy and its unchecked accumulation in the virtual economy. From a financial risk prevention perspective, public financial capital, as the dominant force within the financial system, must strike a balance between overarching national interests and long-term strategic goals. While ensuring asset preservation and appreciation, it should actively address industrial chain vulnerabilities and fulfill its role as a key “stabilizer” in the economy. Meanwhile, governments must establish institutional safeguards to curb blind investment and prevent systemic risks stemming from the disorderly expansion of financial capital in virtual economic activities. The current convergence of the Internet and financial industries reflects an inevitable trend of the digital age. While driven by the pursuit of profit maximization through technological and data advantages, this integration risks encouraging Internet firms to pursue aggressive market expansion under speculative financial logic, which may give rise to new forms of financial monopoly. Therefore, it is imperative to clearly define the scope of financial activities within the fintech sector and implement a dynamic “traffic-light” mechanism to regulate investments in the virtual economy, preventing asset prices from being artificially inflated and triggering financial bubbles. In terms of digital industry risk management, efforts must be made both technologically and institutionally. A robust industrial security framework should be established, and data security must be safeguarded through legal and regulatory means. As digital technologies, such as cloud computing, mobile Internet and big data, continue to evolve, incidents like customer data breaches and online financial fraud remain prevalent. Financial institutions must increase investment in cybersecurity infrastructure, cultivate specialized talent in hardware and software development and build resilient digital network systems. Moreover, governments must enact laws and regulations to prohibit corporate misconduct, including the illegal collection of personal information, algorithmic profiling for behavioral prediction and engagement in financial or telecom fraud, to ensure the lawful and orderly operation of real-sector enterprises and individual financial services.

Since the launch of reform and opening-up, China's economic system reforms have advanced through experimentation along a path combining administrative planning with market-based resource allocation. Regulatory tolerance has often been appropriately increased and oversight relaxed to create a conducive environment for innovative financial models. However, the rapid rise of digital technologies in China has outpaced the development of its regulatory framework, resulting in regulatory gaps when financial capital drives large-scale adoption of digital innovations. In recent years, the application of AI, big data and cloud computing has led to a surge in innovations in financial products and services. Financial services and Internet operations have become increasingly intertwined, with cross-sector mixed operations becoming commonplace. Some financial innovations employ complex structuring or misleading packaging, which complicates supervision and makes it difficult for sector-specific regulators to enforce targeted oversight. In some cases, the financial activities of Internet firms have even involved illegal operations. This issue is particularly evident in the peer-to-peer (P2P) lending sector, where weak regulation and low entry barriers enabled numerous platforms to conduct illegal fundraising and organized fraud under the guise of legitimate P2P lending. These incidents resulted in significant losses for investors and triggered serious social consequences. In December 2023, the People's Bank of China explicitly stated in the China Financial Stability Report 2023: “We will build a new financial risk monitoring, early warning, and resolution system focused on non-credit assets, emerging financial institutions, and novel financial market products. We will also closely monitor risks associated with digital finance and fintech innovation” (Financial Stability Analysis Group, People's Bank of China, 2023, p. 14).

While Internet-based financial enterprises can foster competition and enhance financial inclusion, the concentration of market share among them may trigger systemic financial risks and increase uncertainties in the smooth operation of the national economy. To address this challenge, it is imperative to establish a new regulatory framework for such enterprises, one that ensures high data fluidity as a production factor while striking a balance between the security and openness of digital financial systems. Supported by digital technologies, a dynamic “traffic-light” mechanism for capital allocation should be introduced to fully leverage the leading role of public financial capital and the flexibility of non-public financial capital.

First, traditional regulatory indicators – such as those measuring financial efficiency and stability – no longer fully capture the scope of contemporary financial activities. Governments at all levels should therefore expand the regulatory evaluation framework by incorporating new metrics, including digital finance market competition, personal data privacy protection and cyber risk resilience, to more comprehensively reflect the objectives of financial regulation. On one hand, oversight of public financial capital should not only ensure effective digital supervision but also affirm its strategic leadership in foundational and key industries. On the other hand, regulation of non-public financial capital must not only prevent improper business practices but also harness its investment agility to drive fintech innovation.

Second, the current financial regulatory system must be strengthened through the establishment of unified regulatory rules and a long-term supervisory mechanism. This requires integrating traditionally fragmented sectoral oversight and extending it to cover emerging business models arising from the integration of digital technologies into financial capital. China's existing sector-specific regulatory framework often fails to capture innovative financial activities enabled by digital transformation, such as Internet finance, and thus needs to be modernized and refined. Moreover, regulatory responsibilities should be clearly delineated to achieve comprehensive coverage and avoid regulatory arbitrage.

Third, regulators should fully leverage the technological advances brought about by the digital revolution. By embedding digital tools, such as big data analytics, AI and cloud computing, into supervision, regulators can enhance the timeliness and precision of oversight. In the digital economy, algorithmic systems and data architectures are increasingly embedded in financial operations. Although the fundamental logic of financial transactions remains unchanged, transaction processes and product designs have become more complex, amplifying the uncertainty and unpredictability of financial risks. Therefore, governments at all levels should strengthen the application of regulatory technology, enrich the regulatory toolkit and enhance the system's capacity to identify and mitigate financial risks. Only through such innovation in supervision can financial capital be guided toward healthy development within a well-regulated framework.

This paper is the current outcome achieved under the National Social Science Fund of China’s (NSSFC) general project “Study on theoretical logic and empirical evidence of market-based factor allocation under the new development landscape.