Is data a new fac­tor in pro­duc­tion and thus a new cat­a­lyst of growth?

Chi­na has been able to main­tain com­par­a­tive­ly high eco­nom­ic growth rates due to its devel­op­ment from a labour-inten­sive econ­o­my to a pri­mar­i­ly cap­i­tal­ist one and end­ing in an  econ­o­my root­ed in tech­nol­o­gy. Will data emerge as a key mech­a­nism for push­ing eco­nom­ic growth? Both Chi­na and Europe seem to have sin­gled out data as a cru­cial ele­ment in ensur­ing future eco­nom­ic growth and secur­ing geopo­lit­i­cal pow­er. Do the Euro­pean Com­mu­ni­ty and Chi­na share the same per­spec­tives and plan sim­i­lar mea­sures regard­ing data as an essen­tial ele­ment in eco­nom­ic devel­op­ment, and what are the impli­ca­tions for busi­ness, econ­o­my and inter­na­tion­al relations?

In her lat­est Duet Inter­view with Prof. Dr Doris Fis­ch­er, Chair of Chi­na Busi­ness and Eco­nom­ics at the Uni­ver­si­ty of Würzburg, Dr Cal­daro­la, author of Big Data and Law, dis­cuss­es the dif­fer­ent per­cep­tions of data as a new fac­tor of pro­duc­tion from both Euro­pean and Chi­nese perspectives.

Already in 2013, EU Com­mis­sion­er Neel­ie Kroes called data “the new oil”. Since then, how has the EU embraced the impor­tance of data that is encap­su­lat­ed in this comparison?

Prof. Dr Doris Fis­ch­er: In order to address the grow­ing strate­gic impor­tance of data, the Euro­pean Com­mis­sion has prop­a­gat­ed a num­ber of pol­i­cy papers and strate­gies since the 2010s. In 2014, it released a com­mu­ni­ca­tion with the title ‘Towards a thriv­ing data dri­ven econ­o­my’, which was the basis of anoth­er com­mu­ni­ca­tion enti­tled ‘Build­ing a Euro­pean data econ­o­my’ which appeared in 2017. In 2018, the Gen­er­al Data Pro­tec­tion Reg­u­la­tion (GDPR) was released which again was fol­lowed by the ‘Euro­pean Strat­e­gy for data’ in 2020 as well as a White Paper on Arti­fi­cial Intel­li­gence. Last Novem­ber, the EU Com­mis­sion pro­posed a reg­u­la­tion on data gov­er­nance which is sup­posed to be passed in 2021 and which is to reg­u­late and fos­ter data shar­ing among busi­ness­es as well as among busi­ness­es and governments.

Which con­cept of data does the EU pur­sue? What is the val­ue of data for its economy?

The com­mu­ni­ca­tion of 2014 includes the key phras­es “data-dri­ven econ­o­my” and “data val­ue chain”. The data-dri­ven econ­o­my is sup­posed to exploit data along the whole val­ue chain as a non-com­pet­i­tive resource in order to con­tribute to the “well-being of cit­i­zens as well as to socio-eco­nom­ic progress through new busi­ness oppor­tu­ni­ties and through more inno­v­a­tive pub­lic ser­vices”. In this way, trans­ac­tion costs are to be reduced, inno­va­tions fos­tered and pro­duc­tiv­i­ty lev­els improved. In the end, all these fac­tors should con­tribute to increased com­pet­i­tive­ness and eco­nom­ic growth. Since 2017, the impor­tance of data has been stressed fur­ther. Instead of “data-dri­ven econ­o­my”, the EC now uses the short­er term “data econ­o­my”. This term refers to an econ­o­my that is char­ac­ter­ized by “dif­fer­ent types of mar­ket play­ers – such as man­u­fac­tur­ers, researchers and infra­struc­ture providers – col­lab­o­rat­ing to ensure that data is acces­si­ble and usable. This enables the mar­ket play­ers to extract val­ue from this data by cre­at­ing a vari­ety of appli­ca­tions with a great poten­tial to improve dai­ly life”. This new term not only artic­u­lates the role of data in the econ­o­my more con­crete­ly, but also views the data econ­o­my as a sep­a­rate eco­nom­ic realm that pro­duces a spe­cif­ic value.

What impact has data had on EU com­pet­i­tive­ness and eco­nom­ic growth?

The Euro­pean Com­mis­sion is increas­ing­ly aware of glob­al com­pe­ti­tion with regard to dig­i­tal­iza­tion and data eco­nom­ics. It has adopt­ed more urgent lan­guage both in the way it describes the need to catch up with oth­er glob­al play­ers and in the char­ac­ter­i­za­tion of data. The lat­ter is por­trayed as “the lifeblood of eco­nom­ic devel­op­ment” and as an “essen­tial resource” with enor­mous eco­nom­ic and social poten­tial. Fur­ther­more, in line with the GDPR, recent doc­u­ments from the Euro­pean Com­mis­sion empha­size the impor­tance of data pro­tec­tion in con­junc­tion with the goal of a sin­gle mar­ket for data.

How has the EU inter­pret­ed the trade-off between data pro­tec­tion (pri­va­cy) and the exploita­tion of data in data markets?

Evi­dent­ly, the Com­mis­sion is attempt­ing to bridge the gap between data exploita­tion and the right to data pro­tec­tion by refer­ring to a “soci­ety empow­ered by data”. To this end, it envis­ages a val­ue-based and inclu­sive data econ­o­my which allows for a “trust­wor­thy exchange of data”. The lat­ter includes data altru­ism, a con­cept that describes the dona­tion of anony­mous data by actors, for exam­ple enter­pris­es, for the ben­e­fit of soci­ety. This could be imple­ment­ed via neu­tral data inter­me­di­aries, who man­age data flows between dif­fer­ent actors, but are not dri­ven by profit-maximization.

Let us look to Chi­na and its devel­op­ments regard­ing data. What is par­tic­u­lar­ly Chi­nese with regard to their atti­tude con­cern­ing data?

The Chi­nese gov­ern­ment has long rec­og­nized the impor­tance of data for econ­o­my and soci­ety. It views data as a key dri­ving force for inno­va­tion, which leads to improve­ments in qual­i­ty and pro­duc­tiv­i­ty and, ulti­mate­ly, eco­nom­ic growth. In this regard, the Chi­nese per­spec­tive resem­bles the Euro­pean view. Chi­na also pro­motes the build­ing of data plat­forms and data shar­ing in a sim­i­lar vein to the EU.

Con­verse­ly, in con­trast to the EU, Chi­na has aug­ment­ed data to the lev­el of a pro­duc­tion fac­tor. This trend start­ed among researchers and was endorsed by the Cen­tral Com­mit­tee of the Chi­nese Com­mu­nist Par­ty in Octo­ber 2019. The Chi­nese gov­ern­ment explains the ele­va­tion of data to the rank of a pro­duc­tion fac­tor by using a nar­ra­tive of eco­nom­ic his­to­ry. Accord­ing to this inter­pre­ta­tion, land and labour were key fac­tors of pro­duc­tion in the agri­cul­tur­al era, where­as fac­tors like cap­i­tal and entre­pre­neur­ship became more impor­tant in the indus­tri­al era. Today, in the con­text of a dig­i­tal econ­o­my, data enjoys the same sta­tus which these tra­di­tion­al fac­tors pre­vi­ous­ly had. By attach­ing the tag “fac­tor of pro­duc­tion” to data, the gov­ern­ment high­lights its strate­gic eco­nom­ic impor­tance and can thus jus­ti­fy relat­ed measures.

What oth­er dif­fer­ences can be observed between the per­cep­tion of the EU and Chi­na regard­ing data?

The Chi­nese gov­ern­ment has arguably made more progress than the EU in trans­lat­ing the acknowl­edged impor­tance of data into con­crete action. For exam­ple, the Social Cred­it Sys­tem, ini­ti­at­ed in 2014, is built around efforts to con­sol­i­date and har­mo­nize gov­ern­ment data­bas­es at the nation­al lev­el, while the Inter­net Plus Strat­e­gy (since 2015) aims at incor­po­rat­ing infor­ma­tion tech­nol­o­gy in a vari­ety of fields (e.g., agri­cul­ture, gov­ern­ment mon­i­tor­ing). In addi­tion, Chi­na passed its first Cyber­se­cu­ri­ty Law in 2016, which focus­es on improv­ing secu­ri­ty in cyber­space and increas­ing data local­iza­tion and pro­tec­tion in the inter­est of nation­al secu­ri­ty. How­ev­er, com­pared to the EU’s GDPR, China’s Cyber­se­cu­ri­ty Law does not guar­an­tee data pro­tec­tion from the state, since the state is allowed to intrude in cas­es of nation­al secu­ri­ty and pub­lic interest.

Fur­ther­more, fol­low­ing the idea that data is a fac­tor of pro­duc­tion, the Chi­nese gov­ern­ment is devel­op­ing the con­cept of data as an asset. While the EU has not spec­i­fied how data should be incor­po­rat­ed into busi­ness account­ing, the notion of data as an asset, which is to be con­sid­ered in busi­ness account­ing, is already emerg­ing in Chi­na. A recent report from the gov­ern­ment-led research insti­tute Chi­na Acad­e­my of Infor­ma­tion and Com­mu­ni­ca­tions Tech­nol­o­gy also high­lights this trend by propos­ing changes in account­ing laws to cat­a­logue data assets and deter­mine their value.

Can you explain the Social Cred­it Sys­tem in greater detail?

Sim­ply stat­ed, the Social Cred­it Sys­tem is quite a com­plex attempt at social man­age­ment. It aims at cre­at­ing trust and cred­it­wor­thi­ness by col­lect­ing data to assess the behav­iour of indi­vid­u­als and com­pa­nies. At the same time, it also tries to edu­cate peo­ple with regard to integri­ty and hon­esty. An impor­tant aspect of the SCS is pub­licly blam­ing and sham­ing rule infringers. It actu­al­ly involves numer­ous play­ers, as there is a state-run arm of the SCS which relies on dif­fer­ent min­istries and local gov­ern­ments as well as the cen­tral bank, name­ly, the People’s Bank of Chi­na. But there are also com­mer­cial Social Scor­ing Sys­tems which have been devel­oped by e‑commerce and fin­tech plat­forms. The lat­ter ones are most like­ly to con­dense results into sin­gle scores, where­as the gov­ern­ment tends to work with red and black lists. In prac­tice, the pub­lic and pri­vate scor­ing sys­tems are sep­a­rate mech­a­nisms, which nev­er­the­less are par­tial­ly inter­linked. Most impor­tant­ly, many aspects of the sys­tem have not yet been nation­al­ly uni­fied, some­thing which may be part of the long-term vision for this system.

Is data being used dif­fer­ent­ly in Chi­na and in the EU or is just the vocab­u­lary dif­fer­ent? Let us look to China’s Social Cred­it Sys­tem. Does, for exam­ple, the Sch­u­fa – the Ger­man pri­vate com­pa­ny for cred­it rat­ing – tar­get the same goal giv­en reports that the Sch­u­fa now wants to assess peo­ple’s cred­it rat­ing by look­ing at their bank statements?

There are def­i­nite­ly some sim­i­lar­i­ties, since the Sch­u­fa pro­vides data to assess cred­it­wor­thi­ness, as do dif­fer­ent insti­tu­tions with­in the Chi­nese SCS. Both in Ger­many and Chi­na, cred­it rat­ing involves pub­lic and pri­vate ele­ments. In detail, how­ev­er, there are notable dif­fer­ences: With regard to com­pa­nies, the main col­lec­tor of cred­it­wor­thi­ness infor­ma­tion in Ger­many, Sch­u­fa, is a pri­vate firm, where­as the Chi­nese equiv­a­lent is a pub­lic insti­tu­tion. How­ev­er, while access to Sch­u­fa data is rather restrict­ed, infor­ma­tion dis­clo­sure in Chi­na is less con­strained. The pub­lic plat­form Cred­it Chi­na dis­clos­es much less infor­ma­tion, but pri­vate plat­forms use Cred­it China’s data as well as addi­tion­al data that is pub­licly avail­able to devel­op and pro­vide AI-based com­pre­hen­sive assess­ments of the cred­it­wor­thi­ness of Chi­nese companies.

If I have under­stood your answers cor­rect­ly, the EU as well as Chi­na place a great empha­sis on data. How­ev­er, Chi­na seems to look at data in much more tech­no­crat­ic terms where­as the EU pro­motes a val­ue-based approach. Chi­na has defined the role and exploita­tion of data in the econ­o­my more con­crete­ly than the EU. In addi­tion, Chi­na has an advan­tage with regard to data due to its pop­u­la­tion size and the strong and active steer­ing role of the gov­ern­ment. What are the impli­ca­tions with regard to the com­mon­al­i­ties and dif­fer­ences for busi­ness­es, regions and inter­na­tion­al trade? Does the Chi­nese or the Euro­pean approach to data pre­vail on the glob­al market?

For busi­ness­es, this very diver­si­ty in approach­es pro­vides both oppor­tu­ni­ties and risks. On the one hand, dif­fer­ent reg­u­la­to­ry pro­pos­als, such as, for exam­ple, regard­ing data pro­tec­tion, may result in high­er costs for multi­na­tion­al enter­pris­es that oper­ate in both regions, since they need to adopt cus­tomized approach­es to ensure com­pli­ance in each region. This can become a bar­ri­er, espe­cial­ly for small­er com­pa­nies, to oper­at­ing in the respec­tive unknown mar­ket. On the oth­er hand, it can also become an oppor­tu­ni­ty to exploit the exist­ing local con­di­tions as much as pos­si­ble and to gen­er­ate addi­tion­al prof­it. For exam­ple, firms could make use of the lax­er data pro­tec­tion require­ments in Chi­na to gen­er­ate inno­v­a­tive prod­ucts and ser­vices in the first step and only lat­er adapt the prod­ucts to the reg­u­la­to­ry require­ments in oth­er mar­kets. At the same time, they could opti­mize their glob­al pres­ence to ben­e­fit from data pro­tec­tion in the EU.

My favorite quote:

“The form of fac­tors of pro­duc­tion is con­stant­ly chang­ing […] Today, new pro­duc­tion fac­tors such as data have a mul­ti­pli­er effect on the effi­cien­cy of oth­er fac­tors, form­ing advanced pro­duc­tive forces”.

Nation­al Devel­op­ment Reform Com­mis­sion as quot­ed by Chi­na Dai­ly, 10.04.2020

At the glob­al lev­el, if both regions con­tin­ue to focus on what sets them apart (e.g., data pri­va­cy, val­ue-dri­ven actions), there is a risk of dif­fer­ent impen­e­tra­ble blocks form­ing that would in turn hin­der data exchange and coop­er­a­tion due to the dif­fer­ent val­ues attached to data and reg­u­la­tions. Such a trend could ham­per glob­al­iza­tion and, in the worst case sce­nario, force oth­er coun­tries to decide which eco­nom­ic group to join. How­ev­er, as men­tioned above, the EU has empha­sized that it is not attempt­ing to restrict glob­al data flows while Chi­na has just launched its glob­al ini­tia­tive for col­lab­o­ra­tion regard­ing data pro­tec­tion. It is there­fore still pos­si­ble for the EU and Chi­na to find com­mon ground in this regard. If they did, their data-relat­ed glob­al ini­tia­tives could make an impor­tant con­tri­bu­tion to glob­al data gov­er­nance frame­works con­ducive to reg­u­lat­ed glob­al­iza­tion and fur­ther eco­nom­ic growth.

You men­tioned that one impor­tant dif­fer­ence between Chi­na and the EU is the extent to which data is viewed as an asset. What impact does this dif­fer­ence have on the Inter­na­tion­al Account­ing Stan­dards (IFRS). Can we expect a change in reg­u­la­tions and, if so, what can we expect exactly?

I wouldn’t expect any imme­di­ate changes. In the longer term, we should observe the increas­ing impor­tance of data as a major growth fac­tor to be mir­rored in account­ing stan­dards. In Chi­na this devel­op­ment has already begun. More recent­ly, Chi­nese experts have also dis­cussed ways to include data assets into tax­a­tion rules. It is not clear how much the poten­tial for tax­a­tion has actu­al­ly influ­enced the recent pro­mo­tion in sta­tus of data to a pro­duc­tion fac­tor. But clear­ly this devel­op­ment will impact the glob­al debate about the wealth accu­mu­lat­ed by big plat­form com­pa­nies and data col­lec­tors. For this rea­son, I expect that the Chi­nese exam­ple will encour­age oth­ers to move in this direc­tion as well.

Chi­na has shown its suc­cess­ful man­ag­ing of the COVID-19 pan­dem­ic by using dig­i­tal sur­veil­lance and this suc­cess has rein­forced the Euro­pean fear of an author­i­tar­i­an rival over­tak­ing the West­ern demo­c­ra­t­ic ascen­dan­cy. What has been the Euro­pean response to Chi­na’s evi­dent suc­cess in this dif­fi­cult situation?

The EU has pro­mot­ed a val­ues-based approach; it has defined nine strate­gic domains, such as health, agri­cul­ture and mobil­i­ty for which spe­cif­ic data spaces are to be set up. These data spaces are intend­ed to fos­ter the exchange of data and to trig­ger inno­va­tion. All these efforts are expect­ed to evolve in line with EU val­ues, as well as two non-nego­tiable prin­ci­ples regard­ing data: First, the sta­ble, pre­dictable free flow of data at the glob­al lev­el; and Sec­ond, the pro­tec­tion of data and pri­va­cy where rel­e­vant, not just for indi­vid­u­als, but also includ­ing sen­si­tive non-per­son­al data (e.g., com­mer­cial­ly sen­si­tive data). Hence, the EU has cho­sen an open, yet assertive val­ues-based glob­al approach to data.

That being said, equat­ing data-based con­trol of the Coro­na pan­dem­ic with dig­i­tal sur­veil­lance and an author­i­tar­i­an regime does not reflect real­i­ty. Tai­wan, South Korea and Japan, to name just a few, have also employed data-based tools to con­tain the pan­dem­ic and have been quite suc­cess­ful in doing so with­out com­pro­mis­ing their demo­c­ra­t­ic systems.

Prof. Fis­ch­er, thank you for shar­ing your insights on the val­ue of data.

Thank you, Dr Cal­daro­la, and I look for­ward to read­ing your upcom­ing inter­views with rec­og­nized experts, delv­ing even deep­er into this fas­ci­nat­ing topic.