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.