Insights

China's digital future

Beijing plans to establish a new department responsible for carrying out its "Digital China" strategy over the next ten years to improve the country's information technology infrastructure and regulation.

The new department will be known as the National Data Bureau and will oversee data flow management and work toward developing "smart cities." The bureau will replace the Cyberspace Administration of China and concentrate on executing Beijing's long-term digitization plan.

The new entity will take over one of the State Council's responsibilities, which is the creation of China's Big Data strategy and digital infrastructure. At the same time, the Ministry of Science and Technology will undergo restructuring, with most of its functions being transferred to other departments, such as the Ministry of Agriculture and Rural Affairs, the Ministry of Industry and IT, and the National Health Commission.

However, the Ministry of Science and Technology will still play a crucial role in strategic planning, resource allocation, and regulation and will continue managing China's laboratories, technology projects, and the National Natural Science Foundation of China.

During the ongoing annual meeting of the National People's Congress, which will conclude on March 13, the proposed changes will be deliberated upon and approved. In addition, the need for China to boost its semiconductor industry was emphasized by Vice Premier Liu He on March 2, who suggested a "whole nation" approach that would enable the government to leverage the resources of the country's research institutions and companies to achieve technological advancements.

To promote the integration of the nation's digital and real economies, the Chinese Communist Party (CCP) Central Committee and State Council released the Overall Layout Plan for the Development of a Digital China to promote the use of digital technologies across economic, political, cultural, social, and environmental sectors.

According to a plan, China aims to establish a system to achieve its "Digital China" goal by 2025. The plan also outlines the country's goal to become one of the world's foremost nations in terms of digitalization by 2035. The plan includes developing new infrastructure projects, such as 5G and gigabit optical networks, data centers in the western region, and facilities related to the mobile internet of things.

The plan also aims to encourage the launching of more internet and Beidou satellite applications. It has been reported that over 10,000 Chinese companies, including 6,000 factories, have already installed dedicated 5G networks to support artificial intelligence applications. Despite enduring several sets of sanctions from the US since 2018, Huawei Technologies has installed 5G networks to improve productivity.

Some countries in Europe and North America have also banned Huawei's 5G technology due to security concerns.

According to Pan Helin, the Digital Economy and Financial Innovation Research Center co-director, China's digital vision still faces several persistent obstacles. First, unresolved systemic issues impede the flow of data, including the lack of a mandate for government departments to share their databases and inadequate infrastructure to support the data sector's growth.

However, Pan believes that creating a National Data Bureau can help solve these problems, as it will lead to the collection and categorization of data, generating new demand for China's Big Data, AI, and cloud companies, as well as data center operators, chip, and IT equipment makers.

According to Yang Chang, an expert at Zhongtai Securities Co, data has become a crucial factor of production, following land, labor, capital, and technology. Furthermore, the strategic value of data is on the rise. Yang added that the National Data Bureau would likely encourage both state-owned and private enterprises to utilize their data to generate commercial value.

Meanwhile, Zhang Ying, a deputy director at the Shanghai Municipal Commission of Economy and Informatisation, has stated that the new bureau will promote seamless data exchange across China's borders. However, she noted that the absence of a standardized platform to facilitate data exchange between mainland-based and foreign companies leads to fragmented and unusable data.

Additionally, Zhang emphasized that the ability of foreign companies to export data from their mainland units will entice them to invest and develop their businesses in China.

In 2019, the CPC recognized "data" as a production factor alongside traditional ones such as manpower, capital, land, knowledge, know-how, and management. As a result, the term "data factors," which refers to data with economic value, has become common in official statements. From late 2020 to mid-2022, the Chinese government introduced new antitrust and privacy regulations to oversee the technology sector.

Chinese technology companies must also obtain approval from national regulators if they want to go public overseas. The Data Security Law, passed by the NPC standing committee in June 2021, mandates that social media platforms allow user data exchange between different instant messaging apps and prohibit blocking cross-platform access and file transfers.

According to some experts, properly organized and regulated data flow can benefit local and central governments by generating additional revenue.

In 2021, Huang Qifan, the former mayor of Chongqing, suggested that companies should be subject to a "data tax" if they engage in transactions involving their users' data. This tax, equivalent to 20-30% of the revenue generated from such transactions, could be collected by a central government agency overseeing local data activities. Additionally, key cities could establish data transaction marketplaces with all transactions tracked using AI and blockchain technology.