Last year, China approved a set of updated accounting rules that allow companies to include data resources as “intangible assets” or “inventory” in their financial statements.
China's Ministry of Finance said corporate data can be classified as intangible assets if it meets certain accounting standards, and data held for sale in daily business activities can also be included in inventory.
Intangible assets, including software, databases and intellectual property, are expected to take up an increasing proportion of Chinese companies' balance sheets.
According to the Ministry of Finance, the scale of China's digital economy will exceed 50 trillion yuan (US$6.9 trillion) in 2022, accounting for 41.5% of gross domestic product.
LGFVs are hybrid entities that are both public and corporate, and were created to circumvent local government borrowing restrictions. They have skyrocketed since the 2008 global financial crisis.
Five of the LGFVs are from Jiangsu province, China, and four are from Shandong province. China Merchants Securities said in a May 2 note that in these LGFVs, transportation-related data, including urban transportation and parking resources, are most commonly registered as intangible assets. Other types of data include heating pipe network databases and utility data. Networks are also classified this way.
Among these LGFVs, one LGFV in Tianjin and one in Sichuan Province, which have registered data as assets, succeeded in obtaining financing. However, the loan amount was relatively small compared to the overall debt balance, with 15 million yuan in arrears as of June 2023, compared to more than 54 billion yuan in arrears, the securities firm noted.
The Chinese government has encouraged local governments to transform LGFVs, which have traditionally focused on infrastructure spending, into for-profit entities, with mixed success so far.
“[Funds] The funds obtained from the bank will be used for business, technology research and development,'' an anonymous executive from Tianjin Lingang Holdings was quoted as saying by Tianjin Daily in February.
“Through digital assets, we gained credit from banks. This expanded our cash flow and encouraged us to further incorporate data as an asset.”
Legal issues surrounding the data, including ownership, valuation and the quality of what counts as an asset, remain unclear, Dagon Global Credit Ratings said.
“For companies with rich data resources, adding data as an asset to their balance sheets can more accurately reflect their true financial position,” the Chinese rating agency said in a note last month.
“However, driving entry remains difficult given factors such as data ownership, timeliness, and fluctuations in value.”