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

Prof. Dr Doris Fis­ch­er – Pho­to: Christoph Weiss

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.

About me and my guest

Dr Maria Cristina Caldarola

Dr Maria Cristina Caldarola, LL.M., MBA is the host of “Duet Interviews”, co-founder and CEO of CU³IC UG, a consultancy specialising in systematic approaches to innovation, such as algorithmic IP data analysis and cross-industry search for innovation solutions.

Cristina is a well-regarded legal expert in licensing, patents, trademarks, domains, software, data protection, cloud, big data, digital eco-systems and industry 4.0.

A TRIUM MBA, Cristina is also a frequent keynote speaker, a lecturer at St. Gallen, and the co-author of the recently published Big Data and Law now available in English, German and Mandarin editions.

Prof. Dr Doris Fischer

Prof. Dr Doris Fischer has 30 years of experience in academic research, teaching and consultancy on the Chinese economy. She has done extensive research on competition, regulation and industrial policies in various sectors focusing, amongst others, on the rationale of Chinese economic policies and resulting incentive structures of the economic players in question. Since 2012 she is Chair of China Business and Economics at the University of Würzburg, Germany. The interview has been realized in collaboration with her PhD student, Theresa Krause.

Dr Maria Cristina Caldarola

Dr Maria Cristina Caldarola, LL.M., MBA is the host of “Duet Interviews”, co-founder and CEO of CU³IC UG, a consultancy specialising in systematic approaches to innovation, such as algorithmic IP data analysis and cross-industry search for innovation solutions.

Cristina is a well-regarded legal expert in licensing, patents, trademarks, domains, software, data protection, cloud, big data, digital eco-systems and industry 4.0.

A TRIUM MBA, Cristina is also a frequent keynote speaker, a lecturer at St. Gallen, and the co-author of the recently published Big Data and Law now available in English, German and Mandarin editions.