On December 19, 2022, the Central Committee of the Chinese Communist Party and State Council jointly published a formal statement outlining China’s precise steps to developing basic data systems and better utilizing the country’s data resources.
Chinese top officials defined data as a “factor of production” in 2020, designating it as an essential resource for generating economic value. Two years later, the government has laid out a new plan for building the infrastructure needed to support China’s growing data economy. The document refers to core organizations, processes, guarantees, and regulations required to support a healthy data trade as essential components of such infrastructure.
The plan also provides plenty of new, substantial information, such as how the data trade system would function and how the law would define data property rights.
This article outlines the plan’s highlights and significance for developing China’s data economy.
What is the data economy?
The data economy is broadly defined as a digital ecosystem where a network of vendors collect, organize, and exchange data with the goal of generating value from the accumulated information.
Such data inputs are collected by a wide range of entities, including search engines, social media platforms, online and physical retailers, payment processors, software as a service (SaaS) providers, and companies deploying connected devices on the Internet of Things (IoT). The acquired information is then shared with individuals or businesses, upon a fee charge.
In the United States, the Consumer Financial Protection Bureau and other organizations have developed some early models for regulating the data economy. Indeed, part of the data economy is devoted to storing and protecting acquired data.
Between 2011 and 2020, the amount of data in the world (also known as “datasphere”) rose from 1.8 to 59 zettabytes (ZB). By 2025, this volume will reach an astounding 175 ZB.
Unsurprisingly, big data’s increasing ubiquity has generated concerns about data privacy, prompting the creation of several data protection legislation around the world. These include, among others, the European Union’s General Data Protection Regulation (GDPR) and China’s Personal Information Protection Law (PIPL).
Why does the data economy matter to China?
Data will shape China’s future development. The significance of controlling digital information in the Chinese domain has only increased since the State Council recognized data as an essential component of production alongside land, labor, capital, and technology in 2020.
Several key concepts have emerged in recent years, including how China will use data to boost its economy, the increasingly strict nature of data protection regulations, and the larger impact that Chinese data governance ideas may have on other nations.
Beijing also intends to leverage data as a factor of production. On December 28, 2021, the Central Commission for Cybersecurity and Informatization issued the 14th Five-Year Plan for National Informatization (14th FYP), with the aim of “activating the factor value of data” in order to “create a strong domestic market that is innovation-driven [and] high-quality.” According to the 14th FYP, China’s digital economy will rely on data as a regulated good closely supervised by the government rather than as an untapped resource to be exploited by the free market.
The 14th FYP explicitly gives the government the authority to control the IT industry and, indirectly, some of the most significant data handlers, while acknowledging that China’s private IT businesses shall lead all elements of national informatization.
In addition, other policies and initiatives also target the development of the digital space and economy. Below are some of the measures we have been tracking:
In February 2021, the State Administration for Market Regulation (SAMR) published new anti-monopoly guidelines that aim to curb monopolistic behaviors by giant internet platforms and increase scrutiny of e-commerce marketplaces. The rules are meant to encourage fair competition and safeguard consumers.
In June 2021, the Data Security Law (DSL) came into effect as a new pillar of China’s legal framework on information security and data privacy protection. The law focuses on data localization, data export, and data protection requirements.
Effective November 1, 2021, the PIPL, along with the Data Security Law and the Cybersecurity Law, further strengthened the legal realm of security and personal information protection.
In January 2022, the CAC released the revised Administrative Provisions on Mobile Internet Application Information Services, which underlined China’s commitment to regulating the privacy and security of mobile apps.
China also plays a fundamental role in setting international standards for digital innovation, and the government has been vocal about this goal.
ASEAN, the Arab League, and numerous other nations have backed China’s Global Data Security Initiative (GDSI), which aims to achieve international agreement on “standards and regulations of the global digital field,” covering cross-border data transfers, data security, etc.
In addition, through China’s Digital Silk Road (DSR), Chinese companies have been offering digital infrastructure and services to host nations, influencing the circumstances in which other nations develop their own digital economy.
How will the new plan shape China’s data economy?
According to the 20 measures included in the plan, the government will develop basic data systems in four areas, including:
Data circulation and transactions;
Data income distribution that promotes fair compensation;
Data element governance; and
Centralized planning, policy support, and (controlled) experimentation.
Data property rights
Due to the complex nature of data, defining the scope of the rights in data trade is a difficult job. The new plan proposes to explore structural separation for different types of data property rights and requires the establishment of mechanisms for the classification, distinction, and authorization of public data, enterprise data, and personal data.
According to the characteristics of the data source and generator, the document urges the definition of legal rights enjoyed by each participant in the process of data production, circulation, and use. A property rights operation mechanism should be established separating the right to hold data resources, the right to use data processing, and the right to operate data products.
This is the core foundation for the market construction and circulation of different types of data. Data are hard to manage since they only generate value through their use, but the owner cannot obtain value by using his own data. To solve this contradiction, the plan suggests relying on the separation of rights so as to protect some data and let others be used for transaction purposes. The separation between ownership, use, and management rights proposed in the new plan reflect these objectives.
Data circulation and transaction
Improving and standardizing the regulation for data circulation, building a trading system that promotes the use and circulation of data, and combining the national and international data trade markets, are among the key objectives outlined in the new plan.
Regarding cross-border data trade, the document calls for international cooperation in data exchange, business interoperability, regulatory recognition, service sharing, and other similar practices.
This will help promote the construction of cross-border digital trade infrastructure and contribute to China’s active participation in international regulations and standards covering digital technology, such as data flow, data security, certification and evaluation, and digital currency.
For typical application scenarios, such as cross-border e-commerce, cross-border payment, supply chain management, and service outsourcing, the plan suggests exploring safe and standardized cross-border data flow methods.
In addition, since data is considered a matter of national security, it will be regulated by the laws for data processing, cross-border transmission, and foreign capital merger and acquisition (M&As), among others. Similarly, China will adopt a principle of reciprocity toward other countries’ security concerns.
Governance of data elements
A data element is a unit of information that has a unique meaning and subcategories or data items of distinct value. In other words, the data element will have a collection of attributes that define its identification, representation, and values. For example, gender, race, and geographic location. The new plan aims to safeguard the circulation and transaction of such data elements ensuring that it is legal and follows a standardized procedure for privacy protection.
In the context of data trade, various pricing models will be explored based on the characteristics of data elements:
Public data will be used for the country’s digital development under government guidance.
Data sourced and traded from enterprises and individual information will be priced independently.
The plan also calls for the formation of ad-hoc data trading places. Accordingly, the government will strengthen the design and optimize the layout of data trading venues while “strictly controlling their number.” Such dedicated spaces will have to respond to regulations under a unified national standard system for data trading and security.
The 20 measures articulated in the plan also outline several ways of income sharing, including:
Dividends and commissions; and
Balancing the distribution of interests among relevant subjects, such as data content collection, processing, circulation, and application.
Centralized planning, policy support, and (controlled) experimentation
The final six measures in the document are dedicated to the development of governance and supervision mechanisms to create a safe, credible, inclusive, innovative, fair, and open market environment for data elements.
The plan proposes to establish different basic data systems with the following objectives:
Compliance notarization;
Safety review;
Algorithm review;
Monitoring and early warning for the whole process of data element production, circulation, and use; and
Clarification for all parties about their responsibilities and obligations for data element circulation safety.
As per the new plan, social entities (such as industry associations) are encouraged to participate in the construction of the data economy, support the development and service of the security technology related to data circulation, and promote the safe and reliable circulation of data elements in different scenarios.
The future of China’s data economy
The plan is set to institutionalize protection measures and to manage potential hidden risks related to data security, such as data information leakage and illicit data exploitation.
Now that China is formalizing the design of its data economy by identifying key components and stakeholders, institutionalizing protections, and managing data usage – further local regulations are expected to be released in 2023. Businesses entering the data economy must note their impact and make necessary preparations.
