China, the land of big numbers, will soon hold the most of yet another precious resource. But unlike its huge labor force, mounds of rare earths and manufacturing prowess, this reserve — its zettabytes of data — is just beginning to be tapped.
Soon, China's central government could lean on private companies, including the country's fintech giants and foreign multinationals, to share more of their data — not just in response to one-off demands, but wholesale.
In recent policy documents, including China's 14th Five-Year Plan, released in March, central authorities have designated data as one of a small number of "factors of production" — national resources that form the backbone of the country's economy. As of April 2020, it has been considered on par with land, labor, capital and technology in its potential to generate GDP. To facilitate this, one Beijing-led initiative would ask private companies and government departments to trade and exchange data with each other.
The goal — outlined in the new Five-Year Plan — is to create digital governance and make everything from factories to cities "smart." One might envision, for example, raw materials being automatically shipped and allocated using privately-owned autonomous vehicles connected to government mapping data and IoT devices that monitor supplies at smart manufacturing facilities.
Beijing's data-trading plan has already seen the emergence of a slew of online platforms that facilitate data exchanges, as well as novel regulations that pertain to technical standards, the categorization of data in certain industries, data ownership and pricing.
This shift is in part an attempt to drive growth in China's digital sector, which is increasingly shouldering the burden of the country's economic growth, as well as an attempt to outpace innovation and standard-setting by the U.S. and Europe. China's digital economy grew 9.7% in 2020 despite the pandemic, several times the pace of China's overall GDP growth, according to the China Academy of Information and Communications Technology. It accounted for 39% of last year's total GDP, and is projected to grow an average of 15% per year, to make up more than half of China's economy by 2025.
According to Kendra Schaefer, head of tech policy at Trivium China, an analyst firm, the push to use data to fuel the Chinese economy is an overarching impetus for several major regulatory shakeups already underway in China's digital space.
One example of this development: Beijing's crackdown on Alibaba on antitrust grounds. Some industry observers have described Beijing as growing weary of the ecommerce giant's refusal to share its vast reams of consumer data with regulators. Big foreign firms like Tesla and Apple have taken heed, and are localizing data storage in response to tightened rules around data security.
"It's a huge deal," Schaefer said during an online policy workshop last month. "We're now seeing the concept [of data as a national resource] appear in almost every conversation that policymakers are having around data, across the board."
Provincial action
In response to China's drive to turn data into an economic resource, about a dozen so-called "data exchange platforms" have sprung up across the country, including in Beijing, Shanghai and Taiyuan, the capital of Shanxi province in Northern China. One, in Guiyang, capital of Guizhou province in the southwest, was set up as early as in 2014, though it now appears to be offline.
Many have backing from city or provincial governments and ministries, and at least several were set up with help from state-owned telecom providers or private corporations such as Baidu and subsidiaries of Wanda Group and JD.com.
These platforms are currently trading data on business and intellectual property registrations, corporate tax and social credit records, COVID-19 vaccination clinic locations, water collection points, judicial or traffic penalty records, foreign investments, images for AI training and audio samples from Chinese people, foreigners and even children — with some listed as "gathered from smartphones." They also offer data services such as searches of Chinese IDs or a phone's network connectivity.
Will the private sector cooperate?
Sources told Protocol that on several occasions, backers of these platforms have approached businesses, including foreign multinationals and chambers of commerce, in an attempt to recruit them. So far, they say, the response from both Chinese and foreign businesses has been tepid. Nearly all data being traded so far appears to come from government departments, not private companies. Chinese businesses Protocol reached out to all declined to comment or did not respond.
A major issue is that there isn't necessarily any means of recourse for companies if legal problems arise in the event of confusion around emerging policies or if data is misappropriated, said Jacob Gunter, senior policy and communications manager at the European Union Chamber of Commerce in China.
He cited the uncertainty companies have over China's still-emerging data governance regime, which includes 2017's Cybersecurity Law as well as the just-finalized Data Security Law and forthcoming Personal Information Protection Law.
Some critics say that these laws give Chinese authorities sweeping powers to look in on a company's data while gating off normal multinational business practices. What's more, Gunter said, the latter regulations already saw enforcement in their draft forms, which were subject to revision, creating compliance headaches for companies.
U.S. businesses that have submitted feedback regarding PIPL and DSL have "by and large" been ignored, even though the Chinese government had requested public comment, according to a senior-level commerce executive familiar with discussions between American companies and Chinese regulators, who spoke on condition of anonymity due to the risk of retaliation from authorities.
In China, regulations are often enforced even as they are being developed, and that is the case here, Gunter said. This is pushing European companies "to take a much more conservative approach to how they handle data," he added. As a result, he and Schaefer said, foreign businesses have been reluctant or unwilling to participate in the data-exchange pilots.
That will be particularly true if more granular rules, now being formulated by specialized bodies and government branches, would require private companies to forfeit ownership of certain types of data to governments, such as in the example of a draft policy for the Shenzhen Special Economic Zone in Southern China, which defines a category for "public data" to include "all kinds" of information "generated and processed by public management and service agencies while managing or serving the public." In other words, the data that private businesses create or handle could become government property.
"Potentially there could be sensitive data or trade secrets," said Camille Boullenois, a cybersecurity-focused consultant at Sinolytics, a Europe-based China analyst firm. "That could be scary for companies."
Correction: This story has been updated to reflect that data has been considered a "factor of production" since April 2020.
