Data will become a new tradable asset class on par with major commodities if China succeeds in a high-profile effort to monetize what some economists call the oil of the 21st century.
China’s top leaders hope that the establishment of the national-level Shanghai Data Exchange and the launch of the Data Security Law will help China lead the Fourth Industrial Revolution.
Earlier this year, Chinese Vice-Premier Liu He encouraged public and private sectors to trade or share their data, which has been defined by the Communist Party of China (CPC) as a key production factor in the digital economy. China’s new Data Security Law creates guidelines for data sharing by internet companies
The full court press by China’s leaders to support data trading follows several small-scale experiments which failed to reach critical mass. The Guiyang Data Exchange was established in 2015 but never saw significant trading volume. The launch of the Shanghai Data Exchange with strong official support and a new legal foundation for data exchange, China hopes, will do much better. Officials and academics predict that the new data exchange will make breakthroughs in the recognition, pricing, traceability, market access and regulation of big data products.
China’s first data bourse
When British mathematician Clive Humby first said “Data is the new oil” in 2006, not many people imagined that big data might be traded like crude oil.
In 2010, Chinese businessman Wang Sanshou, nicknamed the “Data King,” founded the Jusfoun Big Data Information Group as he saw rising opportunities in the big data sector. In 2013, Wang proposed to set up a platform to trade the big data owned by local governments and state-owned enterprises (SOEs).
In April 2015, the Guiyang Data Exchange, the first big data bourse in China, was established. The Guizhou provincial government owns a 35% stake in it through three SOEs. Jusfoun Big Data was the second-largest shareholder with a 22% stake. Wang was the chief executive of the bourse. On June 17 in the same year, Chinese President Xi Jinping visited the Guiyang Data Exchange and praised the local government for taking the initiative to develop the big data industry.
When the bourse was set up, Wang said he expected that its daily turnover would reach 10 billion yuan (US$1.57 billion) in the coming three to five years. He later lowered the target to an annual turnover of 100 million yuan but it was still not achieved.
Securities Times reported in July this year that the Guiyang Data Exchange’s annual turnover was less than 8 million yuan in 2019 and 5 million yuan in 2020. Citing former employees, the newspaper said the bourse thought it could simply charge a 10% commission in transactions but it underestimated the difficulties in product recognition.
A former manager said the Guiyang bourse had in its early stage received a lot of orders from data buyers but it failed to complete them. He said the bourse had once received an order of 20 million yuan but it involved inter-provincial data trading that the bourse could not handle.
The bourse started facing financial difficulty in 2019 and was taken over by the State-owned Assets Supervision and Administration Commission in July last year. After a restructuring, the bourse resumed its operation on October 11 this year and recorded a transaction of 2.25 million yuan on the first trading day.
Data trading platforms
Over the past six years, about 30 big data trading platforms have been established in China with at least seven of them owned by local governments. Those remaining are privately owned.
On March 31, 2021, the Beijing Municipal Bureau of Economy and Information Technology, together with the city government’s financial and commerce bureaus and state-owned financial company Beijing Financial Holdings Group, launched the Beijing International Big Data Exchange.
The Exchange was a part of China’s “fintech infrastructure” that would focus on the cultivation of a data transactions market to unleash the value of data as a factor of production, said Beijing Deputy Mayor Yin Yong.
The exchange would build an innovative transaction ecosystem by bringing together multiple parties including data source providers, algorithm participants, site participants, technical support parties and data transaction service parties to establish the Beijing International Data Transaction Alliance, Yin said.
“If every province has its own big-data trading platform, each bourse will operate in its own way, making it difficult for China’s big data sector to grow,” Gao Xiaoyu, a researcher at the Beijing-based Electronic Technology Information Research Institute, said in July.
“At the same time, if some companies collected a large amount of personal data without an effective system to share it, a ‘data monopoly’ will be created,” said Gao. “If these companies misuse their data, it will hurt consumers’ privacy and rights and may threaten national security and slow economic growth.”
The central government should set up a center to manage all local data activities and allow several key cities to set up data transaction bourses, Huang Qifan, a distinguished professor of Fudan University and former mayor of Chongqing, said at the Shanghai Bund Financial Summit on October 24. He added that all these bourses had to be owned and managed by governments or SOEs.
Over the past year, Beijing has tightened its rules in the internet sector, urging companies including Alibaba, Tencent, ByteDance and Didi to protect cyber security and prevent them from disclosing their data overseas.
In fact, Xi Jinping, General Secretary of the CPC, has said in December 2017 that “data is a new production factor, a fundamental and strategic resource and an important productive force.” On October 31, 2019, the CPC for the first time categorized “data” as a production factor, along with traditional ones including manpower, capital, land, knowledge, know-how and management. Since then, the term “data factors,” which refers to data with economic values, has been frequently used in official statements.
“Human society is entering a new historical stage of the rapid rise of digital productivity,” Liu He said in an opening speech via video footage in the China International Big Data Industry Expo in Guizhou on May 26. “Big data is profoundly affecting global technological innovation, industrial structure adjustment, and economic and social development.”
Liu said China should set up a system to define data ownership, encourage data trading, use data reasonably, promote fair competition and oppose data monopoly.
On June 10, the standing committee of the National People’s Congress passed the Data Security Law, which took effect on September 1. According to the law, social media platforms should support user data exchange between different instant messaging apps and prohibit blocking cross-platform access and file transfer.
Internet platforms are also required to bear the responsibility for data security management of third-party products and services linked to them. Besides, companies that transfer “core data” overseas without an approval from the Chinese authorities will be penalized.
On November 14, the Cyberspace Administration of China started a one-month consultation for its coming Regulations on Network Data Security Management, which will provide more guidance to internet operators.
Shanghai Data Exchange
With strengthened regulations and past experiences of Guiyang Data Exchange, the Shanghai government launched its own data exchange on November 25. It said it was the first big data bourse built on the national level. On the first trading day, 20 products were transacted.
Among them, State Grid East China Power Grid Shanghai Municipal Electric Power Company sold a product that tracks companies’ power consumption in Shanghai to the Industrial and Commercial Bank of China, which will use it to cross-check borrowers’ credit situations. China Telecom’s Shanghai branch created a product with data of people’s telecommunication demands and sold it to a state-owned researcher, which will use it to evaluate prices of commercial sites.
In addition, ChinaScope (Shanghai) Ltd, a data analysis firm, has reportedly received a credit line from a bank after it unveiled a product that can draw a chart to tell the relations between two random companies.
“Data will only be valuable if it can be used by external parties while data that cannot be distributed or exchange should not be called ‘data factors’,” said Huang Lihua, a deputy director at the National Engineering Laboratory for Big Data Distribution and Exchange Technologies, which was set up by the central government in 2017.
Huang said many existing platforms were facing challenges in the recognition, pricing, traceability, market access and regulation of big data products. She said the establishment of Shanghai Data Exchange would help tackle these problems and build a big data hub in the biggest Chinese commercial city within the next three to five years.
Fu Xiao, an assistant professor at the Department of Industrial Economics, School of Management, Sudan University, said it was not a bad idea for large internet companies to expand their businesses but the problem was that they lacked incentives to create new big data products but tended to use their advantage to monopolize the markets. Fu expected that the Shanghai Data Exchange would help break the monopoly of internet giants.