Data Factors: Unveiling Their Role and Value

1. What Are Data Factors?

1.1 Origin of the Concept

Data Factors, a term rooted in economic theory, refers to the elements essential for production. The concept was officially recognized in China in November 2019 by the "Decision of the Central Committee of the Communist Party of China on Adhering to and Improving the Socialist System with Chinese Characteristics, and Advancing the Modernization of the National Governance System and Capacity" (《中共中央关于坚持和完善中国特色社会主义制度推进国家治理体系和治理能力现代化若干重大问题的决定》), which marked data's inclusion as a factor of production.

Thus, it is more accurately translated into English as "Data Factor" rather than the literal "Data Element."

By April 2020, the Central Committee of the Communist Party and the State Council further acknowledged data as the fifth fundamental factor of production, following labor, land, capital, and technology, in their document "Opinions on Establishing a More Complete System and Mechanism for Market-oriented Allocation of Factors" (《关于构建更加完善的要素市场化配置体制机制的意见》).

• Traditionally, production factors included labor, land, and capital, with technology being added in the information age. Now, data joins as a new member.
• China is the pioneer in recognizing data as a production factor, while internationally, the acknowledged factors include labor, land, capital, and entrepreneurship.

In December 2022, the "Opinions of the CPC Central Committee and the State Council on Establishing a Data Foundation System to Better Play the Role of Data Factors" (《中共中央 国务院关于构建数据基础制度更好发挥数据要素作用的意见》) laid the groundwork for China's data foundation system. It introduced 20 policy measures, known as the "Data Twenty Articles"("数据二十条"), representing a foundational document for the data factor market and China's first comprehensive policy targeting a specific factor.

1.2 Characteristics of Data Factors

Data, as a novel production factor, is distinct from traditional factors due to its virtuality, low-cost replicability, diverse ownership, non-competitive nature, non-exclusivity, heterogeneity, and the incremental marginal utility it provides.

Data factors do not deplete with use and differ significantly from other factors in this regard.

Their value is only realized when utilized, increasing with use, while remaining idle in data warehouses brings no value.

• Openness, sharing, and trading maximize the value of data factors.

2. The Value of Data Factors

2.1 Consensus on Value

The addition of "factor" to "data" significantly shifts its connotation—highlighting data's value and asset properties. As the fifth major production factor, data is recognized as a critical foundational strategic resource by various sectors, gradually reaching a societal consensus on its importance.

The "Data Twenty Articles"

The "Data Twenty Articles," introduced in December 2022, establish China's data foundation system, focusing on data ownership, circulation, profit distribution, and security management. This document serves as a guiding principle for the data factor market, marking China's first foundational policy for a specific factor.

The main objective is to promote the lawful and efficient circulation and use of data, thereby empowering the real economy through four systems: data ownership, circulation, profit distribution, and security management.

• Data ownership is defined by the separation of rights: holding, processing and use, and operation rights, encouraging use, supply incentives, and exploration of trusteeship.
• The circulation system fosters the development of a data factor circulation and trading ecosystem, nurturing data vendors and third-party service providers.
• Profit distribution is market-driven, with contributions determining rewards, encouraging investment and value creation.
• Security management requires concerted efforts from governments, enterprises, and society to ensure protection.

Data Assets on the Balance Sheet

The Ministry of Finance is revising accounting rules, having published "Interim Provisions on the Accounting Treatment of Enterprise Data Resources" (source link), with data factors to be included in the balance sheet as intangible assets starting January 1, 2024.

The China Appraisal Society has established data asset pricing and evaluation standards (source link).

2.2 Realizing Value

The three main activities concerning data factors are identification, valuation, and trading.

• Data Resourceization focuses on data processing and governance, emphasizing the potential value of data and how it can be officially recognized (e.g., through privacy rights, collection rights, usage rights, access rights, resale rights, and profit-sharing rights).
• Data Assetization concentrates on scientifically and standardly measuring data's value, with valuation methods including cost, market, and income approaches. Future efforts will explore how to precisely reflect data factors in enterprise balance sheets.
• Data Capitalization revolves around data trading activities, with basic data, standardized data products, and customized products (deeply processed, non-standard) being the main trade objects.

The main trading roles include data providers, data demanders, data platform operators, technology supporters (responsible for data processing), and intermediary service providers (responsible for data tracing and asset evaluation).

The value realization of data factors currently undergoes three stages:

1. Supporting Business Integration

Data supports the operation of business systems, driving digital transformation and integration. Data governance primarily involves database management tasks such as editing, aligning, and merging.

2. Facilitating Intelligent Decision-making

Data analysis supports strategic decision-making and business intelligence, revealing deeper relationships and patterns for smarter, more accurate decision-making in production, management, service, and governance.

3. Enabling Circulation

External empowerment breaks down barriers for inclusive utilization. For instance, the Shanghai Data Exchange was established in November 2021, with its first data trade involving State Grid's "Enterprise Electricity Map" data product, sold to the Industrial and Commercial Bank of China's Shanghai branch.

2.3 Opportunities and Challenges

As data solidifies its role as a production factor, its importance in enterprise information system development and digital transformation becomes undeniable. Information systems gain more opportunities for value realization, while the management and control of data assets pose higher demands on their development. Traditional data security technologies address static storage risks, but the evolution towards data factorization requires addressing dynamic transmission, exchange, and integration risks.