Data property rights system will be launched

Data, as a key factor of production, requires a clearer definition of rights and obligations to form a predictable set of trading rules. As data becomes a new type of factor of production, it poses new challenges to traditional systems of property rights, circulation, distribution, and governance.

On May 24th, Chen Ronghui, Deputy Director of the National Data Bureau, revealed at the Data Resources and Digital Security Sub-forum of the 7th Digital China Summit that a data property rights system will be introduced, policy documents will be formulated to promote the compliant and efficient circulation and trading of data, and a safe governance mechanism for the distribution of data element benefits will be established. He stated that the introduction of these systems will build a basic framework for the development and utilization of data resources and lay the foundation for the reform of market-oriented allocation of data elements.

On December 19, 2022, the "Opinions of the Central Committee of the Communist Party of China and the State Council on Building a Basic Data System to Better Utilize the Role of Data Elements" (hereinafter referred to as the "Data Twenty Articles") were issued. At that time, the person in charge of the National Development and Reform Commission stated that it is necessary to grasp the main line of "promoting the compliant and efficient circulation and use of data, and empowering the real economy," and to aim at "fully realizing the value of data elements and promoting all people to share the dividends of digital economic development." (For details, see: "Data Twenty Articles" has five major issues of rights and interests, will "ownership rights" be a breakthrough?)

A senior person in the field of data, who prefers to remain anonymous, believes that Chen Ronghui's recent statement implies that the "establishment of a data property rights system that protects rights and interests and complies with the use of data" proposed in the "Data Twenty Articles" is expected to be introduced soon.

The famous "New Palgrave Dictionary of Economics" defines property rights as: "A right to choose among various uses of an economic good enforced by society." The well-known American economist Demsetz believes that: "Property rights include the rights of a person or others to benefit or suffer losses. Property rights define how people benefit and suffer losses, and therefore who must compensate whom to correct the actions taken by people."

Therefore, property rights are not the commonly understood ownership, but a broader freedom of action. The "Data Twenty Articles" proposes to explore the establishment of a property rights operation mechanism that separates data resource ownership, data processing and use rights, and data product management rights, forming a Chinese characteristic data property rights system of "three rights separation." Yang Dong, Dean of the Institute of Interdisciplinary Research at Renmin University of China, has pointed out in his writings that this system downplays the ownership of data and focuses more on the use and circulation of data, which is a significant innovation and has important theoretical and practical guidance significance for the construction of future data rights systems.In the view of Xu Ke, director of the Center for Digital Economy and Legal Innovation at the University of International Business and Economics, the introduction of a data property rights system is of immediate urgency. Data, as a key factor of production, calls for a clearer definition of rights and obligations, thereby forming a predictable set of transaction rules. China needs to adopt a more explicit declaration of rights protection.

The Urgency of the Data Property Rights System

How large is the scale of China's data market?

The "National Data Resources Survey Report (2021)" shows that in 2021, the total volume of data in China reached 6.6 ZB, a year-on-year increase of 29.4%, accounting for 9.9% of the global data production, second only to the United States (16 ZB), ranking second in the world. In the past three years, China's data production has maintained an annual growth rate of about 30%.

Previously, Wang Jiandong, deputy director of the Price Monitoring Center of the National Development and Reform Commission, publicly stated that in the short term, the basic data system will give birth to a data transaction market with a scale of 300 billion to 500 billion yuan. With the announcement of the data entry document, and as a series of systems such as the separation of data rights, data registration, and rights confirmation become clear in the future, the potential scale of the entire data asset market will exceed 60 trillion yuan. (For details, see: "What conditions are needed for 'data finance' to replace 'land finance'?")

Chen Ronghui stated that, overall, the development and utilization of China's data resources are still in the initial stage, with insufficient high-quality data supply, poor circulation, and insufficient application being relatively prominent issues. The main reasons are the imperfect institutional system, insufficient technical support, and incomplete factor market.

The data property rights system is one of the basic systems for establishing a data factor market. Chen Ronghui stated that in order to build a unified, open, and competitively orderly data factor market, the country has introduced a data property rights system, formulated policy documents to promote the compliant and efficient circulation and transaction of data, established a safe governance mechanism for the distribution of data factor benefits, introduced policy documents to encourage and support the development and utilization of public and enterprise data, and gradually established a registration management, authorized operation, and product pricing mechanism for public data resources. The introduction of these policies and systems will build the basic framework for the development and utilization of data resources and lay the foundation for the reform of the market-oriented allocation of data factors.

Professor Gao Fuping from East China University of Political Science and Law pointed out that at the national level, there is a call for the establishment of a data property rights system, and the basic logic is that the utilization of data factors requires marketization, and marketization requires transactions, so there must be property rights. Property rights are the basic institutional requirements for data circulation and market-oriented allocation.

Xu Ke, on the other hand, stated that the introduction of a data property rights system is of immediate urgency. The "Opinions of the Central Committee of the Communist Party of China and the State Council on Building a More Perfect System and Mechanism for the Market-oriented Allocation of Factors" and the "Opinions of the Central Committee of the Communist Party of China and the State Council on Accelerating the Improvement of the Socialist Market Economic System in the New Era," both issued in 2020, emphasized the need to cultivate and develop the data factor market, and data as a factor of production has also been included in the top-level institutional design. Recently, with the rapid development of generative AI, the importance of training data has become more prominent, and data has been increasingly focused on at the economic and technical levels.Data Rights Controversy Awaits Resolution

Although the introduction of a data property rights system is of immediate practical urgency, due to the particularities of data, there has been a long-standing controversy over whether "the construction of a data factor market needs to be based on data rights confirmation."

This is also the reason why all parties are eagerly anticipating how the "data property rights system" will resolve these disputes.

From the perspective of traditional economics, rights confirmation is an important prerequisite for data to enter the market and be traded. Nobel laureate in Economics Ronald H. Coase believed that due to the existence of transaction costs, clear rights arrangements are a prerequisite for the effective operation of factor markets.

Professor Shen Weixing from the Law School of Tsinghua University once pointed out in his writing that, according to current research, there is still much debate on whether data should be rights-confirmed, what kind of property rights should be established, and how property rights should be allocated, and judicial rulings have not yet reached a consensus. It can be said that the issue of data rights confirmation has become the biggest difficulty and bottleneck in the development of today's digital economy. The difficulty arises because the academic community, when discussing the issue of data rights confirmation, has not grasped the hierarchical structure between data, information, and privacy, nor has it recognized the complex internal hierarchical structure of data, thus falling into a flat rights confirmation mindset.

Shan Zhiguang, Director of the Department of Informatization and Industrial Development at the National Information Center and Chairman of the Digital Economy Forum, previously stated in an interview that data essentially has non-competitive and public resource characteristics, and the exclusive rights confirmation approach of traditional production factors such as labor, capital, and land is difficult to apply to data resources. Achieving clear data rights confirmation in reality presents significant challenges.

Specifically, first, there are many types of data factors, multiple claimant subjects, and public resource characteristics, which make it difficult to exclusively define data property rights according to the same rules. For example, individuals, enterprises, and governments all have the rationality to claim platform data rights, making it difficult to completely define them for a single subject. Instead, property rights need to be split, which will lead to many practical challenges in the process of data circulation.

Second, the data production chain includes multiple participants, and data rights confirmation needs to take into account the protection of personal privacy, breaking the data monopoly of platform enterprises, and maintaining national data security, among other diverse goals. These goals are often not entirely consistent and compatible in many cases.

Third, data application scenarios are constantly changing in real-time, and rights confirmation rules often cannot keep up with the development of technology and business models.

In addition, although data resources are non-competitive in physical form, they are still competitive at the level of commercial interests. The existing intellectual property protection framework cannot fully cover the issue of data rights confirmation. Therefore, data is different from the ownership nature of traditional ordinary physical objects and cannot be absolute. The difficulty of rights confirmation for data factors is higher than that for traditional production factors, which also means that property disputes in the digital economy field will be more complex than those in the traditional economy field.Gao Fuping also introduced the controversial nature of data property rights definition. He believes that a tradable property right has two elements: one is stability in form, and the other is stability in value. However, the circulation and trade of data are different. He gives an example that when a company purchases data and mixes it with its existing data to train a large model, the company's control over the data is very temporary, and its value and form are not fixed, making the significance of property rights definition very weak.

Gao Fuping further explained that after data is assetized, the holder will continuously provide copies to others. Once the data is provided to others and new data is formed, the mission of the previous data is declared over. Therefore, Gao Fuping believes that data possession rights are the basis for transactions, which can initiate transactions, that is, the orderly circulation of data. However, possession rights cannot be transferred to others; what the data owner gives is the right to use, so there is no need to define data property rights. There only needs to be a stable asset manager, and then data can be licensed for others to use. "The requirement of clear property rights definition and registration for trading does not meet the needs of data element expansion," said Gao Fuping.

Despite the above controversies, Xu Ke believes that with the introduction of the "data property rights system," people will gradually shift from the abstract debate on whether to confirm rights to specific issues such as the rights, obligations, and responsibilities of relevant parties regarding data, thus gradually forming a consensus.

Xu Ke believes that data rights confirmation is necessary in China. The data market in China is an emerging field, and the boundaries of rights, obligations, and responsibilities of data are not clear, and the parties and the market have not yet formed a basic consensus. Moreover, China's data transactions, which rely on the internet, are under strong regulatory control. China's "Personal Information Protection Law," "Data Security Law," "Cybersecurity Law," "E-commerce Law," and a series of regulations issued by regulatory authorities have, in fact, imposed many restrictions on data circulation and transactions, compressing the space for data transaction order.

Xu Ke introduced that other countries either do not have the vast amount of data and rich application scenarios as China, or their market development and legal environment are different from China's, so it is not simple to apply the practices of other countries. For example, the United States has a data market formed historically, and its data transactions have long had market rules. The U.S. market highly respects the agreements of the parties, following the principle of freedom unless prohibited by law. The transaction parties have relatively clearly defined the rights and obligations each party enjoys and assumes regarding data through contract agreements, industry practices, and codes of conduct, greatly weakening the necessity of rights confirmation. In addition, the United States has a strong ability of the courts to create laws, and even without prior rights confirmation, market rules can also be established through post-factum case adjudication.

Xu Ke believes that data, as a key factor of production, calls for a clearer definition of rights and obligations to form predictable transaction rules. However, such predictable transaction rules need long-term attempts to extend from the market itself in China, coupled with the insufficiency of existing legal supply and strong public law regulation, making it necessary for China to adopt a more explicit declaration of rights protection.

How to clarify the boundaries of rights

At the top-level design level, data rights confirmation has always been considered the foundation for the occurrence of data transactions and the determination of responsibility.

In April 2020, the "Opinions on Building a More Perfect Market-oriented Allocation System and Mechanism for Factors" issued by the Central Committee of the Communist Party of China and the State Council proposed the policy goal of "improving the nature of property rights according to the nature of data." The "Opinions on Accelerating the Improvement of the Socialist Market Economic System in the New Era," released in February 2022, reiterated the goal of building a data property rights system and improving the definition of data ownership. The "Data Twenty Articles," published in December 2022, officially proposed to explore the establishment of a data property rights system, promote the structural separation and orderly circulation of data property rights, and establish a classified and graded rights confirmation and authorization system for public data, enterprise data, and personal data.The core issue lies in how to establish actionable rules that truly enable compliant, efficient, and effective circulation and use of data.

Currently, provinces and cities such as Beijing, Zhejiang, Jiangsu, and Shenzhen have conducted institutional standardization and innovative exploration of their respective data property rights.

The "Shenzhen Interim Measures for Data Property Rights Registration and Administration" (hereinafter referred to as the "Interim Measures") stipulate that natural persons, legal entities, or unincorporated organizations that have completed registration with the registration authority and obtained relevant registration certificates shall enjoy corresponding rights related to data resource possession, data processing and use, and data product operation for legally obtained data resources or data products. These "Interim Measures" came into effect on July 1, 2023. Beijing issued the "Implementation Opinions on Better Leveraging the Role of Data Elements to Further Accelerate the Development of the Digital Economy" (hereinafter referred to as the "Implementation Opinions") in June 2023, proposing to implement a system for data property rights and revenue distribution.

After the establishment of the national data property rights system, what are the core details at the execution level worth observing, and what impacts will they have on all parties?

Gao Fuping believes that the positive impact of the data property rights system is that it empowers data owners, providing them with legal means to protect themselves, while those without data are entirely dependent on buying and selling to obtain data. However, he warns that property rights emphasize the stable possession of data by the owner. Although granting data property rights can stimulate transactions, whether it can truly encourage data owners to share their data remains to be seen.

Xuke believes that the public may have a misunderstanding of the data property rights system: first, the data property rights system limits the space for parties to form their own data transaction rules and order; second, the data property rights system is a very flat listing of various data rights.

Regarding the first misunderstanding, Xuke explains that China's property rights system is designed to supplement contracts when parties have no agreement or unclear agreements, that is, it is a supplementary system provided to better establish transaction rules, rather than an external regulatory system. The data property rights system will not reduce the actions of the parties; on the contrary, it will reduce transaction costs. Market entities can first voluntarily agree on the ownership of rights to form an order for data circulation. For cases where the agreement between the two parties is unclear, the data property rights system can reduce the contracting costs, execution costs, and the overall transaction relief costs of data transactions. "The data property rights system does not restrict freedom but ensures rights on the basis of respecting the parties," said Xuke.

Regarding the second misunderstanding, Xuke stated that the data property rights system is different from the traditional property rights system, as it is always dealing with the interests of multiple entities. "This is a boundary issue, and dealing with this boundary issue must rely on specific transaction structures and scenarios." Xuke believes that this means the data property rights system must provide a rich and more detailed set of data transaction scenarios to address rights and obligations in different transaction scenarios. The data property rights system can specify the rights under the data tri-rights into different rights content under various scenarios, which helps market entities to clarify their rights boundaries. As a result, data rights are no longer a flat structure but a modular three-dimensional framework, which can enhance the expectations and protection of all parties. This ultimately promotes the rapid formation of data market order.

In addition, Xuke believes that another positive impact of the data property rights system is that once data property rights are established, it means that data rights holders have an important basis to counter third parties and public power. In Xuke's view, the data property rights system can endow rights holders with civil rights and interests, which also means that actions such as accessing enterprise data and aggregating enterprise data through administrative orders will be further regulated.