China’s Efforts To Unlock The Value Of Data As An Asset

Economic

Summary:

As companies and policymakers move to better leverage the value of information, key issues such as how to recognize and price it still need clarification.

A half-century into the Information Age, information itself is finally getting its due.

Chinese businesses and regulators are making new efforts to put a value on data generated in commerce and to monetize information as an asset in the digital economy.

Government data indicates that from 2012 to 2021, China’s digital economy expanded from 11 trillion yuan ($1.5 trillion) to more than 45 trillion yuan, and its share of the national economy grew from 21.6% to 39.8%. The burgeoning digital economy generates vast amounts of data, which can be harnessed for business development through collection and analysis.

However, even as companies and policymakers move to better leverage the value of data to drive growth and innovation, key issues such as how to recognize and price data assets still need to be clarified.

Chinese regulators have been working on a regulatory framework for data management and trading. In 2020, the State Council for the first time recognized data as one of five elements of production, alongside land, labor, capital and technology. In late 2022, the cabinet issued guidelines to clarify rights to use, process and market data, laying the groundwork for data trading.

The push is accelerating. On Dec. 15, East China’s Zhejiang province introduced the nation’s first local standard for data asset confirmation, and the Zhejiang Big Data Exchange completed the first data asset pricing deal. On Dec. 28, the southern island province of Hainan issued China’s first ownership certification for a data product.

On Jan. 1, new accounting rules issued by the Ministry of Finance on enterprise data resources took effect, allowing companies to classify data as an asset on balance sheets. Local governments including Beijing have offered incentives to encourage corporations to do so.

The core competitiveness of many companies lies in their ability to hold, process or operate certain data, according to Sun Cheng, a senior partner at DeBund Law Offices in Shanghai.

However, under conventional accounting practices, businesses have been unable to record data as an asset, and expenses incurred in data production have been accounted for as costs. Recognizing data as an asset would reflect the value of a company’s competitiveness and boost shareholders’ interests, Sun said.

The new accounting rules recognizing data as an asset on a company’s balance sheet will benefit big data companies such as Hithink Financial Services, Inc., said Li Feng, deputy dean of Shanghai Advanced Institute of Finance under Shanghai Jiao Tong University.

Hithink, which offers an extensive array of financial information, analytical tools and trading systems, reported more than 9 billion yuan in total assets at the end of September, of which 7.5 billion yuan was in cash. According to Li, the company’s substantial investments in collecting, analyzing and building databases were previously not quantifiable on the balance sheet or recognized as assets. This made it challenging to accurately depict its core competitive strength in financial reports, Li said.

In practice, regulatory gaps have left companies grappling with the ownership of data assets. In December, a court initiated proceedings in China’s first lawsuit concerning data asset registration. Beijing-based data provider Datatang sued Hidden Wood (Shanghai) Technology Co. Ltd., alleging unauthorized distribution of a speech dataset proprietary to Datatang. Hidden Wood countered, arguing that the dataset involves open-source data from the internet, for which Datatang's claim of ownership lacks a solid legal foundation.

Amid the push for data assetization, businesses in the data industry are awaiting further refinement of policies and regulations, experts said.

Zhang Qingqing, CEO of the data company Magic Data, told Caixin that the market needs further clarification of norms and operational mechanisms to guide operations and compliance under the law.

Data as asset

Technically speaking, the classification of data as an asset is no different from that of other assets, Li said. It can be classified as either intangible assets or inventories and can be valued using traditional asset valuation methods, he said.

At the same time, there are still hurdles for companies to evaluate data assets and reflect their value on balance sheets, according to Li.

Pricing has emerged as a major challenge for data asset registration. An executive from a state-owned company told Caixin that his company is trying to include a range of digital content such as designs, artwork and intellectual property in its assets but has found no standard mechanism for determining value.

Some businesses have turned to data trading centers for expertise on pricing. In December, State Grid Zhejiang Emerging Technology Co. Ltd., a subsidiary of state power distributor State Grid Corp., enlisted the Zhejiang Data Exchange to appraise its digital assets related to green credit evaluation. In partnership with asset appraisal experts, the exchange issued the country’s first data asset valuation, using market reference prices alongside a combined market and cost valuation approach.

According to the exchange, state-owned Zhejiang Wujiang Technology Development Co. Ltd. has also been certified to include its data assets related to chemical fiber manufacturing quality analysis on its books.

Another challenge is determining data ownership. He Yuan, a law professor at Shanghai Jiaotong University, told Caixin that data ownership rights cannot be unilaterally determined by enterprises. Registration of data assets is merely an accounting entry and doesn’t establish ownership. It only provides evidence that the company obtained the data through legal and compliant means, He said.

Some local authorities have moved to pioneer data ownership confirmation. The Big Data Administration in Hainan initiated a system for registering rights to data products, a move that is intended to facilitate the future capitalization and monetization of data assets.

On Dec. 28, a Hainan government-backed data trading platform, dubbed the Data Supermarket, issued the country’s first data product ownership certificate to Digital Hainan Co. Ltd., a digital infrastructure operator jointly owned by Alibaba Group Holding Ltd., the Hainan Big Data Administration and other companies.

Data exchanges in Shanghai and Beijing have issued similar certificates that could help enterprises to leverage data assets for financing.

In addition to data exchanges and local data authorities, intellectual property regulators across China are exploring data ownership confirmation and launching data intellectual property registration services. According to the National Intellectual Property Administration, as of Dec. 21 local authorities in Beijing, Shanghai, Zhejiang, Guangdong and elsewhere have launched 17 local data intellectual property pilot projects.

And yet, legal ambiguities and disputes among businesses over data ownership currently cloud the situation. There's significant debate concerning the legal standing of data registration certificates, according to He. Current laws do not grant conclusive data ownership rights through these certificates, underscoring the persistent challenge of creating legal frameworks that adequately address the complexities of data assets.

Burgeoning data trade

On Jan. 4, China’s newly created National Data Administration, together with key ministries including the Cyberspace Administration, the Ministry of Science and Technology, the Ministry of Commerce and the Ministry of Agriculture and Rural Affairs, issued an ambitious action plan for developing the data industry. According to the plan, China expects the data industry to grow at an annual rate of more than 20% between 2024 and 2026, with data trading volume to double.

The data trading market expanded from 61.8 billion yuan in 2021 to 87.7 billion yuan in 2022, an annual growth of 42%, according to a recent report from the Shanghai Data Exchange. The report forecasts that the market will surge to 204.6 billion yuan by 2025.

Data can be traded on or off an exchange. Since the inception of the Guiyang Big Data Exchange in 2015, China has created about 47 such exchanges. These platforms function differently from securities exchanges as they list data products for trade where price isn’t affected by repeated transactions and sellers know their buyers. Yet they set stringent compliance requirements for companies to facilitate trading.

Data exchanges offer the key advantage of official certification, endorsing the data's origin, copyright and security. While standardized data products are well-suited for exchange trading, specialized data that requires customization is more suitable for off-exchange deals, Magic Data’s Zhang said.

Currently, data trading in China primarily occurs outside of exchanges, involving direct interactions and transactions, according to Jiang Xiaojuan, president of the China Society of Industrial Economics. For example, flight ticket agents share passenger-related data with hotels in major destination cities. Jiang noted that businesses prefer to enhance their operations by sharing and utilizing data within their ecosystems to improve services and profits, rather than selling data as packages on data exchanges.

Data traders favor off-exchange deals for custom products due to the stringent compliance demands of data exchanges and their familiarity with direct trading practices, said Sun from DeBund.

“Whether on-exchange or off-exchange, the biggest problem is not the lack of data, but the lack of scenarios,” Li Jiagui, an executive of data provider VPHornor. Data applications are still limited to a handful of scenarios such as autonomous driving, facial recognition and meteorology, Li said.

The value of data should not be simply measured by how much money is made from selling it, but rather by whether the digital economy has grown after the data has been turned into products, said Shan Zhiguang, the director of the Information and Industrial Development Department at the State Information Center. Future data policy should look toward integrating technologies such as blockchain and privacy computing to underpin growth, Shan said.

Souece：CaiXin

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