China struggles to control data sales as companies shun official exchanges

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China is struggling to reduce the influence of a shadow market for business data, as companies shun the official exchanges that have been set up to tighten control over the sale of information. 

Local governments across the country have established 48 exchanges, most of them coming after Beijing enshrined data as a national priority in 2020, making it a fifth pillar of production alongside land, labour, capital and entrepreneurship. Under regulatory supervision, government bodies, state-owned enterprises and private companies can buy and sell data on everything from weather patterns to city traffic flows.

However, industry insiders and experts say there is no clear incentive for companies to participate in these fledgling marketplaces and that most data sales are still happening off the exchanges.

“We are having difficulty attracting participants to enter the marketplace,” said an employee at a state-backed data exchange, adding that the majority of data sales occurred elsewhere. A report published by the Shanghai Data Exchange last month forecast that by 2025, only 10 per cent of data sales would occur on exchanges.

The initiative has been part of broader reforms to increase authorities’ control over data after two decades when internet companies such as Tencent and Alibaba created economic fiefdoms powered by vast troves of consumer data. Since 2021, Big Tech has suffered fines for data violations and the Cyberspace Administration of China has been given stronger regulatory powers over how companies procure, manage and store data.

Since the 2020 move by the State Council, the country’s cabinet, to make data a factor of production, “the government has put data on a pedestal as something that can be traded”, said Xiang Li, an expert on data management in Hong Kong. Beijing’s stated aim is to unleash productivity by giving more companies access to data that will enable them to deploy artificial intelligence in everything from smart manufacturing to autonomous driving.

The value of data bought and sold in China is expected to increase from Rmb88bn ($12.3bn) last year to Rmb516bn ($72.5bn) by the end of the decade, as the use of AI grows, according to the Shanghai Data Exchange report.

But experts say that the government faces an uphill battle in convincing private companies to sell their data on centralised exchanges rather than through a data broker.

The majority of existing data sold on these platforms comes from government bodies, including local transportation and weather bureaus, or from state-owned enterprises (SOEs), which are easier to cajole into handing over their data than private companies, said Kendra Schaefer, head of tech policy at the Beijing-based consultancy Trivium China. 

According to a Financial Times analysis, the majority of data sold by the 700 merchants on the state-backed Guiyang Global Big Data Exchange, the country’s first such platform, are from state agencies and SOEs.

The government of Guizhou province in south-west China, where Guiyang is the capital, has also introduced draft regulations that compel local government bodies and SOEs to hand over their data to the exchange.

Companies such as China Southern Power Grid sell customers’ electricity consumption data on Guiyang’s exchange to credit agencies as a new tool to conduct credit checks, according to domestic media reports.

The official data exchanges are also designed to provide ways for companies, cash-strapped local governments, and state-owned enterprises to monetise data resources amid slowing economic growth. The official exchanges in Guiyang, Shanghai and Beijing are offering subsidies to incentivise companies to participate. 

Even with such incentives, companies are still showing reluctance owing to concerns about getting on the wrong side of data laws restricting the sale of consumer data, according to Trivium’s Schaefer. 

“We’re at an interesting point in history. Companies are buying and selling this critical economic resource, but the laws surrounding how trading works for this resource don’t exist yet,” she said.

The employee at the state-backed exchange, who did not wish to be named, acknowledged that this legal uncertainty prevented it from onboarding new merchants. “Current data laws are not specific about the legality of data exchanges,” they said.

The Cyberspace Administration of China did not respond to a request for comment.

While Beijing had hoped to court data hawkers with the promise of new revenue streams for their data, Schaefer said many companies were also deterred by the high expense of cleaning up their data in preparation for selling on a centralised exchange. “Many companies have poor data management processes, so they need to clean it up before they sell it, which is costly,” she said.

“The state wanted companies to jump on board and say: ‘This is an amazing way to make additional revenue from a resource I generate already’,” said Schaefer. “But the reality is that it’s risky and expensive for companies to stick their data on the platforms. The benefit for the companies is unclear.”