The Exciting Journey of Data Factorization

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Data, the prodigy among traditional production factors like land, capital and labor, is now the lifeblood of digitization and networking, infiltrating every facet of production to social governance. The upshot: data as a production factor, known as “data factor” in the Chinese language, are turbocharging China"s modernization in an irrefutably data-centric era of economic globalization.

Similarly, the digital economy"s rise has sparked a global boom of large language models. This development, driven by various forms of data, has ignited a renewed appetite for data. In this new era, data propel the evolution of large language models, fuelling human technological progress. This symbiosis, energized by policy initiatives, has sent the “data factor” industry growing quickly.

Amid this relentless global data gold rush, the International Data Corporation (IDC) predicts the world"s data volume will reach an astounding 163ZB by 2025. China"s data factor market, already hefty at 81.5 billion yuan in 2021, is projected to maintain a 25% compound growth rate throughout the "14th Five-Year Plan" period.

The exponential growth of data volume, advances in data analysis and innovative applications are driving societal transformation and rapidly expanding industries and professions.

Data factors have captured massive attention in recent months, an intensity unseen in nearly a decade, according to TiPost"s analysis.

National and international forums and summits focusing on data are springing up across mainland China and Hong Kong, with Hangzhou, a digital hub similar to the Silicon Valley, taking the lead. This city hosted the inaugural Future Data Business Conference in February, soon after Shanghai"s Global Data Ecosystem Conference. Other key summits included the Global Digital Technology Summit inHangzhou and the Tech Innovation Industry Summit.

In a pivotal development, the National Data Bureau was founded in March. Subsequently, policies aiming to foster the data factor industry"s growth have surfaced nationwide.

The National Development and Reform Commission in April urged the implementation of the "1+N" data factor system and encouraged localities and industries to pioneer data factor utilization. For the first time, data factorization appears central to the "new infrastructure" scope.

A private equity industry insider suggests this move indicates the strategic value attributed to data and reflects a proactive attitude towards data as a production factor. Consequently, A-share market data factor concept stocks have become a magnet for capital.

Investors’ endorsement is buoyed by the expectation of an industrial wave. Similar to labor and land in the agricultural era, and capital and technology in the industrial era, data is a new production factor in the digital age.

Hangzhou"s hosting of the fourth United Nations World Data Forum in April, the first such global event in the Asia-Pacific region, underscores four themes: digital innovation application and cooperation, data value extraction, data credibility enhancement and data ecosystem development.

UN Secretary-General António Guterres, in his opening remarks, equated the value of data in the 21st century to oil in the 20th century. He urged the use of data"s transformative power to accelerate progress towards sustainable development goals.

Echoing this sentiment, Siddharth Chatterjee, the UN Resident Coordinator in China, highlighted data as key to addressing today"s global challenges. These statements underscore the value of data resources and anticipation for the burgeoning data industry.

Guangdong Province"s recent move to include data factors in GDP calculations exemplifies this shift. Debates around "data factors replacing land factors" and the surge of enthusiasm for data factorization in capital markets further illustrate this trend.

With industry transformation on the cusp, economist John Kenneth Galbraith"s words ring true: "Whoever controls the most important production factor of an era will hold power and obtain more benefits in income distribution."

Data factorization, the transformation of data into a new kind of production asset that generates income, involves the marketization, industrialization and capitalization of data circulation. This complex process requires a departure from traditional ownership and pricing models, necessitating fresh innovations in mechanisms, concepts and operational entities.

Wang Jiandong, Deputy Director of the Price Monitoring Center of the National Development and Reform Commission, suggests that the growth of the data circulation market relies on unlocking the full potential of data assets. This requires creating a new data pricing mechanism, a paradigm tailored to the digital economy"s nuances and grounded in the realities of its development.

However, marketizing data factors isn"t just about pricing mechanisms. It signifies a holistic innovation, one that sets the stage for deeper and more effective utilization of data. The importance of this innovation for data factorization is clearly illustrated in the fluctuating trajectory of the data exchange market over the past nine years.

China embarked on the journey of setting up data trading institutions akin to stock exchanges in 2014. As of November 2022, 48 such institutions had been established, with eight more in the pipeline. Despite their ambitious beginnings, many of these early data trading institutions struggled to find successful business models. Yet, in the last two years, top-level policies have incited the birth of a new wave of data trading institutions across various regions.

These institutions, backed by solid technical support and sharpened rules, have quickly identified their unique positions and breakthroughs in the data factor market. They"re focusing on strategies to dissolve information asymmetry between data supply and demand, encourage market-oriented pricing mechanisms and establish replicable transaction systems and rules.

Huang Lihua, a Professor of Information Management and Business Intelligence at Fudan University and a researcher at the Shanghai Data Exchange, identifies multiple manifestations of these breakthroughs. Institutions have issued certificates related to data circulation, embarked on creating data asset registration platforms, and initiated the exploration of industry-specific data trading markets. These progressive steps are gradually heating up the market of data as a production factor, generating a healthy turnover in 2022 and sparking renewed interest from both buyers and sellers.

Data factorization involves a variety of participants with data merchants playing a critical role. First introduced by the Shanghai Data Exchange in 2021, the concept of data merchants defines firms whose primary business revolves around data, participating in areas like infrastructure, governance, application and circulation of data.

Beijing and Guangzhou followed suit with concepts of "digital economy intermediaries" and "data brokers", respectively. Though slightly differing in scope, they represent new entrants in the data market. Despite the establishment of data exchanges, on-exchange data trading is only a fraction of the market, with 2% to 5% depending on estimates. The majority still lies with off-exchange entities operating in traditional peer-to-peer modes.

The Shanghai Data Exchange"s 2022 Data Merchant Industry Report includes traditional IT service providers and data trading-related services as "data merchant enterprises." These enterprises are central to the data market, participating in data generation, use, circulation, innovation, governanceand management. By this definition, there are approximately 1.92 million such entities, divided into 15 subcategories.

These entities, faced with the rapid marketization of data, see immense opportunities, yet must navigate through challenges. An example is the GrapeCity, established in 1980, a global leader in software development technology provider. It has worked with a range of entities from data merchants to traditional enterprises over the years.

Two cases of development involve factories in Jiangsu and Zhejiang provinces. Initially, their processes were manual, from punch-in times to production work orders. However, faced with decisions about equipment upkeep and production line upgrades, they realized the need for reliable data. They adopted digital systems connecting each device and process, improving data accuracy. This change in attitude towards digitization was especially remarkable in the past three years, involving not only large enterprises but also small and medium-sized businesses.

"From tech giant Huawei to the smallest workshops, everyone"s keen to implement data systems," Zeng Jian, a technical consultant at GrapeCity, notes. The drop in price barriers facilitated this shift, with the cost of customized business intelligence projects becoming more affordable.

The demand for data products extends from executives to frontline staff, laying a solid foundation for the future growth of the data merchant industry. As the market matures, the policy and regulatory environment also evolve. Regulations on data security and privacy protection may increase costs, but the benefits outweigh these expenses.

"The implementation of laws like the Personal Information Protection Law, the Cybersecurity Law and the Data Security Law have clarified the distinction between corporate and personal credit data. This reduces compliance risks and costs for all parties, and significantly reduces the market"s uncertainty about policy expectations," says the data department head at Qichacha. This environment helps protect the standardized operation of certified companies without increasing costs.

Zeng Jian, a seasoned technical consultant for data analysis, shares two insightful cases, highlighting the evolving landscape of data utilization and digital transformation. One of the cases revolves around a leading software company that primarily offers information services to pharmaceutical companies, including the construction of data platforms to facilitate digital transformation.

Despite their substantial experience and access to a rich data pool, the company faced significant challenges in conducting effective big data analysis. This hurdle became increasingly crucial as many production decisions in pharmaceutical companies require comprehensive data from both upstream and downstream sources.

"They have a wealth of data, but they found it challenging to conduct substantial big data analysis, which is vital for their business. They need to continuously analyze accumulated data and use these insights to inform their software development. Without this, their products could risk being ineffective or becoming homogeneous, leading to a less than desirable customer scenario," Zeng Jian explains.

To address this, the company wisely enlisted the services of professional organizations like GrapeCity, which could offer specialized big data analytics capabilities.

"The takeaway from this case is that even for IT service providers, if they aim to better assist customers in digital development or transformation, they need to update their own understanding of information technology," Zeng Jian emphasizes. "Should a software company and its products fail to join the digital transformation journey, they risk being left behind as the market evolves."

In the face of this new data paradigm, data merchants must be adaptable and innovative. "As the user market gradually expands, it"s crucial not to overlook the issue of product homogenization. Data service providers need to focus more on innovating service models and product forms, providing bespoke services tailored to different customer groups and market demands," advises the head of the data department at Qichacha.

To succeed in this evolving market, data merchants should exhibit creativity towards data, a keen understanding of market demands, strict quality standards and management processes to ensure data credibility and a continuous learning ability to keep pace with technological and industry changes.

Zhang Liang, a former data buyer, noted the change in the data industry over the years. In the past, acquiring data was straightforward, with data companies readily offering to crawl any website data. Today, it"s less transparent and increasingly invasive, leaving privacy concerns in its wake.

Zhang commented on the decline in players but an increase in ruthless data collection tactics. He referred to recent personal data leaks involving Zhou, a female actress. There are also cases where a pregnant woman shopped at a maternity store and registered on an app, then her husband received messages about pornography.

Similarly, I also personally experienced "precision marketing" after purchasing liver medicine online, swiftly receiving a promotional gift and sales call from a liquor company and an online hospital. These experiences illuminated the invasive nature of data collection and left Zhang feeling adrift in a sea of despair.

Zeng Jian, a data analyst, suggests that while the national recognition of the data industry brings hope for related industries, it"s essential to remain vigilant. The focus on short-term stimulus from policies and capital could lead to a "false boom" or chaos, similar to what was observed in real estate and internet sectors. He advocates for a calm approach to avoid inflating the data industry.

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