With the rapid growth of the digital economy, digital finance has fundamentally altered traditional financial operations and service models. It not only represents a digital upgrade of financial services, but also serves as a powerful force driving economic structural optimization and the development of new quality productive forces through technological empowerment.

Digital finance refers to the provision of financial services through online and intelligent means, underpinned by technologies such as big data, artificial intelligence, blockchain and cloud computing.

It encompasses traditional financial services — such as payments, lending, investment and insurance — while also giving rise to emerging areas like smart investment advisories and digital currencies. It is not merely an extension of traditional finance, but also a product of the deep integration of finance and technology.

Through data collection, analysis and application, digital finance empowers more intelligent and data-driven services. It enhances inclusivity by lowering barriers to financial services, ensuring that small businesses and individuals benefit as well. Furthermore, automation and intelligent technologies improve the overall efficiency of financial services.

In November, the People's Bank of China-the nation's central bank — and several other ministries jointly issued an action plan promoting high-quality development of digital finance.

The plan clarified that the objective of digital finance is to better serve economic development, focusing on accelerating the digital transformation of the financial sector, providing high-quality services to the digital economy, and promoting the integration of the digital and real economies.

The overall goal is to create a financial system that is highly adaptable to the digital economy by the end of 2027, the plan said.

Notably, the action plan emphasized the foundational role of digital finance in supporting the development of key sectors, such as technology finance, green finance and inclusive finance.

It also emphasized that empowering technological finance innovation is a critical way to support the development of new quality productive forces.

New quality productive forces refer to productivity driven by technologies such as digitization, artificial intelligence and networking, offering several defining features. It is driven by emerging technologies like information technology, AI, big data, cloud computing and blockchain, which significantly improve both production and resource allocation efficiencies.

Data has become a central resource, enabling businesses to optimize decisions, improve efficiency and create new business models. New quality productive forces emphasize intelligent and automated production and services, reducing human labor dependency by leveraging AI and automation.

The internet and IoT enable global resource distribution and tighter collaboration across industries, creating a highly interconnected ecosystem. Innovation, knowledge and creativity serve as key economic growth engines, making knowledge-intensive industries critical for economic development.

Lastly, new quality productive forces focus on sustainable practices, optimizing resources use while promoting environmental protection.

Due to these characteristics, traditional finance faces several challenges when supporting new quality productive forces.

One key challenge is the mismatch between the nature of new quality productive forces and financial support. New quality productive forces often involve cutting-edge technologies and emerging industries, which have high risks and uncertainties.

Traditional financial institutions struggle with assessing these risks, leading to difficulties in securing financing. Additionally, these enterprises tend to rely on intangible assets like intellectual property, technology and data, making it difficult for traditional financial institutions to offer loans based on tangible collateral.

New quality productive forces sectors also require long-term development cycles, making short-term financing options inadequate for industries that generate uncertain cash flows in the short run.

Another challenge lies in the inadequacies of the existing financial system. Traditional financial systems are more suited to mature industries, with insufficient support for emerging sectors.

The lack of specialized financial products and services for these industries further complicates the situation. Furthermore, financial institutions lack effective risk-sharing mechanisms, such as government guarantees or insurance, which reduces their willingness to invest in new quality productive forces enterprises.

Small and medium-sized enterprises and startups in the new quality productive forces space also face challenges in accessing capital markets, as the barriers to entry for listings are high, and financing options remain limited.

Information asymmetry presents yet another obstacle. Financial institutions often struggle to quantify the technology, market prospects and business models of new quality productive forces enterprises, making it difficult to assess their true potential.

Additionally, financial institutions may lack specialized expertise and understanding of these emerging industries, making it harder to accurately assess the risks and opportunities of such enterprises.

Policy and regulatory gaps also hinder the development of new quality productive forces. Existing financial support policies, such as tax incentives and special funds, have not fully addressed the needs of new quality productive forces sectors. The implementation of these policies also requires further strengthening.

Moreover, the regulatory framework is not fully adapted to the cross-sector, cross-industry nature of new quality productive forces, leading to compliance challenges for financial institutions supporting these enterprises.

To address these challenges, digital finance innovation has emerged to play a greater role. The action plan, for instance, emphasized the need for digital finance to create a favorable environment where technology finance, green finance, inclusive finance and pension finance can develop in synergy.

It also called for greater alignment between digital finance products and services with key strategies, critical areas and underdeveloped sectors.

Specifically, in the field of technology finance, the action plan advocated for digital finance to enhance quality and efficiency in technology finance, encouraging financial institutions to use big data to comprehensively assess technology enterprises, improve client selection and marketing efficiency, and exercise better risk assessment.

However, to support the development of new quality productive forces, digital finance should focus on the following areas.

First, optimizing financing channels is essential to address funding challenges. Digital supply chain platforms can be developed through the use of the internet, big data and blockchain to facilitate easy financing for new quality productive forces-related enterprises.

Second, enhancing resource allocation efficiency is crucial in supporting new quality productive forces. Big data can drive precision in investment and financing by providing a comprehensive view of the operational status and market prospects of new quality productive forces enterprises.

Intelligent financial services powered by AI can help offer personalized services, improving fund usage efficiency and reducing transaction costs.

Digital finance can also support the development of green finance by promoting innovation in areas such as carbon trading platforms and green credit, which cater to the financing needs of environmentally conscious enterprises.

Thirdly, innovation in risk management mechanisms is necessary to mitigate financing risks. Digital finance can help build digital credit systems by using big data and blockchain to create comprehensive credit profiles, which can improve risk identification and assessment for financial institutions.

In the long run, digital finance provides comprehensive support for new quality productive forces through technological empowerment, resource optimization and risk management innovation.

As digital technologies continue to evolve and the policy environment improves, digital finance will play an increasingly important role in advancing new quality productive forces and driving high-quality economic development.

Collaboration among government, financial institutions, and businesses will also be key to realizing the deep integration of digital finance with new quality productive forces.

The views do not necessarily reflect those of China Daily.

The writer is director of the Shanghai Institution for Finance & Development.