Chinese cities eyes data assets as fiscal woes bite
Summary
Chinese authorities are looking at an unconventional way to fill up their coffers: data monetization.China’s property slump has weighed heavily on land sales, drying up a key source of revenue for local governments. Now, authorities are looking at an unconventional way to fill up their coffers: data monetization.
The protracted property downturn has hit local governments hard, with many struggling under huge piles of debt. What they also have a lot of is data, such as traffic figures showing how many cars are on the roads and in parking lots.
Authorities in places like China’s wealthier coastal provinces have started looking at ways to turn that data into intangible assets on the balance sheets of local government financing vehicles.
LGFVs were created to mobilize financial resources to meet central government development targets. While the mechanisms have been instrumental in funneling funds into infrastructure, they have also amassed trillions in debt in the process, sparking concern about spillover to other parts of the economy.
Central authorities have repeatedly asked local officials to curb debt risks, and Beijing has taken a more active role recently, looking to ease the burden for cash-strapped administrations via measures like debt swaps.
Efforts to refashion data stockpiles as new financial pipelines for local governments are starting to bear fruit in some places. In March, the state-owned Wenzhou Big Data Operation Company in the eastern province of Zhejiang received 3.78 million yuan ($521,436) of bank loans using its data assets as collateral. In neighboring Jiangsu province, the state-owned public bus operator in the capital city of Nanjing received CNY10 million of data-backed bank credits earlier this year.
The novel approach isn’t just being used by local governments, corporations are testing the waters as well.
Beijing has been looking into transforming the country’s huge stores of data into tradable assets, searching for new economic growth drivers. In January, changes to national accounting rules took effect that pave the way for companies to list data resources as intangible assets.
A batch of listed firms put data assets on their balance sheets in the first quarter of the year, becoming the first to do so, analysts at brokerage China Securities said in a note this week. Local government financing vehicles have followed suit, looking to reduce debt and raise funds, the China Securities analysts said.
Ultimately though, data monetization is likely to be just a drop in the bucket for local government debt.
Given the small size of data-backed loans relative to debt burdens, LGFVs have yet to gain much from their data assets, China Merchants Securities analysts said in a recent note.
That being said, the analysts remain optimistic that as data assets are built up, they could yield bigger rewards.
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