Chinese Experience of Advancing Financial Inclusion in Light of Foster’s Three Limiting Conditions in Institutional Change

China has been developing “financial inclusion” since the 1990s so as to deal with financial exclusion, a problem that faces rural residents and small and micro enterprises as well as the poor. Analysis is conducted in light of John Foster’s theory of institutional change, especially the three limiting conditions, which are, the availability of knowledge, people’s capacity for understanding and adaptation, and the principle of minimal dislocation. Digital finance, introduced into China in the early 2000s, is thought to be the innovative and sustainable means of financial inclusion and was boldly encouraged with very loose regulation, especially before 2015. Many of the nontraditional providers of internet financial services, including nonbank digital payment, internet-based lending, crowd funding, and virtual coins, etc. had boomed like mushroom since 2013. While social permission has been granted to such well-intentioned but poorly understood social experiments, unprecedent internet financial chaos have emerged and spread raising serious social concern. Since 2015, new policy bundles have been developed in China, and the concept and practice of financial inclusion has been transformed greatly. As China is still facing challenges marching toward financial inclusion, the three limiting conditions must be carefully considered in formulating policies.