Original URL: http://www.theregister.co.uk/2012/06/21/china_censorship_throttling_innovation/

Brutal web vice of the People's Republic crushes innovation, growth

Our man in China eyes up prospects for digital

By Phil Muncaster

Posted in Business, 21st June 2012 09:30 GMT

Analysis Recent high profile scandals in China, the fall of Poliburo member Bo Xilai and the US Embassy dash of human rights activist Chen Guangcheng, have highlighted the limits and the grim extent of country’s world-leading online censorship regime.

However, web firms within the People’s Republic and online businesses looking to expand into the region will now be more worried about whether they can survive and thrive there given the increasingly prohibitive restrictions placed on them.

Most people have now heard of the Great Firewall of China, the colloquial name given to the URL and keyword filtering and IP address blocking technology put in place by the Communist Party as part of its giant Golden Shield Project. The government maintains it is there to help prevent social disorder, fraud and the spread of pornography, but it would seem to any outsider that its key aim is to quell any political dissent and keep the party in power.

As important as the technology, however, is the army of censors policing the internet in China. No one knows exactly how many work for the government in these Orwellian roles – some have said as many as 30,000 – but it is clear that the authorities today increasingly expect the web firms themselves to pick up the bill, and the management headache, of self-censoring content on their platforms.

The authorities’ biggest problem of late has been social media and especially the Twitter-like weibos (microblogs – the most famous of which is Sina Weibo) which have sprung up over the past year or two, providing web users with an alternative platform via which to consume and spread information.

It was primarily in response to the unprecedented explosion of content on these platforms – and presumably the fear of social media nurturing revolutionary intent, as it had done during the Arab Spring – that the government recently announced a series of restrictive measures.

First, the web bosses were ordered to step-up self regulation to prevent ‘harmful’ content being spread on their sites; then journalists were given strict guidelines designed to discourage them from publishing anything they had gleaned on such sites; and finally the government instituted a real-name registration policy to discourage users from posting an inflammatory or illegal content.

But even these rigorous measures failed to stop rumours flying around social media as the Bo Xilai scandal was breaking that a failed coup had taken place at the Party’s headquarters in Beijing.

The government hit back swiftly after the incident, closing 16 websites, arresting six rumour-mongers and doling out unspecified punishment to web platforms Sina and Tencent.

Taking a turn for the worse

What makes matters worse for those web companies operating in China, or foreign firms pondering a move into the country, is that this tightening of censorship laws is unlikely to recede once the politically sensitive once-in-a-decade power handover in the Party is completed next year. Rebecca MacKinnon, former Beijing bureau chief for CNN and censorship expert, told The Reg that while things tend to go in cycles of “loosening and tightening”, the overall trend is towards tightening.

Sina, for one, predicted a gloomy start to 2012, thanks in part to the substantial increase in overhead costs placed upon the firm because of the new regulations. Operating costs in Q1 rose 60 per cent year-on-year, due in a large part to HR and infrastructure costs for its weibo business.

According to the Wall Street Journal, Sina’s full-time staff rose 50 per cent to 5,400 from 3,600 in 2010, and it is still on the look-out for more in-house censors.

However, while Sina has been increasingly outspoken about the effects of censorship on its business, rival Tencent appears to be thriving, and such established players have to grin and bear it if they want access to China’s huge internet population, according to MacKinnon.

“My sense is that when it comes to doing business in China there are a range of different costs businesses have to incur and internet companies factor these in,” she siad. “Everyone has to pay it so it’s not seen as a competitive disadvantage and whatever business you’re in there are some fairly unique costs to pay in China.”

Jeff Kim, chief operating officer of content delivery network CD Networks, told The Reg his firm’s advice to clients who want a web presence in China is not to allow any user-generated content on their sites at all. The firm advised The Economist, for example, to ditch its blogs and any satirical content – areas which can draw the ire of the censors very quickly.

“If you are a customer who wants to get their apps or website into China we charge a $10,000 set-up fee – this covers infrastructure, licenses, checking the site content – but it could be more if there are more sites or apps,” explained Kim. “It’s not like you’re putting your site on Amazon S3 here.”

A lot of phone calls with the Public Security Bureau

Firms are required by law to display their web licence and registration number at the bottom of the site so that the authorities can get hold of them in the event that objectionable content is found, and with rules changing on a weekly, daily or even hourly basis it can involve a lot of phone calls with the Public Security Bureau, he added.

“If you don’t have those registration details they won’t have a contact number and you could go on the black list, which is not a place you want to be,” Kim warned. “You can get off that list eventually, but if you do it twice, it’s almost impossible.”

Ditching UGC may be do-able for ecommerce sites, but it could be harder for those reliant on engaging on a deeper and broader basis with their customers. There could be wider implications for China’s own burgeoning digital industry and those foreign VCs who have shown themselves to be enthusiastic investors thus far.

“Some in the business community have made remarks that [censorship] may create a disincentive to innovate outside the box, because with some things you can’t predict how they will play out,” said MacKinnon.

“There’s a feeling in the industry it is stifling experimentation and innovation. If you’re doing anything related to user-generated content you’re in a very tough business.”

Hong Kong Internet Society founding chair Charles Mok agreed, claiming that the effect on local companies over the past 10-15 years has been that they don’t feel they have to innovate.

“They just need to put a spin on what others are doing with Chinese characteristics – Western companies can’t do this,” he told El Reg. “There is a sense that ‘I just need to do what you are doing and not get shut down’.”

For the time being the VCs are happy to invest, and there have at least been isolated pockets of innovation – for example the weibos have managed to vastly improve on the usability and functionality of Twitter, said Mok.

Jurisdictional overlap

Ironically, the government recently published a report claiming that it wants to turn China into an innovation-oriented country by 2020, but whether it can reconcile its need to control the internet with this desire to spur innovation remains to be seen.

In any case, the power of the Great Firewall, Mok added, is not just in the pretty basic technology or the army of government and in-house censors, but in the country’s legal regime.

“In most countries there are few laws which have been applied to the internet, but in China the tendency is to put in many laws, in many different states and provinces, both horizontally and vertically, so you get this great jurisdictional overlap,” he argued.

“The effect, cynically, is that if I want to catch you, I will be able to find a law somewhere that I can do it with.”

Putting the genie back in the bottle

The political reality is that with over 520 million web users it is China who is in the driving seat now, and the truth is it doesn’t much care what the rest of the world thinks. Even Google co-founder Sergey Brin recently admitted he was wrong to question China’s long-term ability to restrict the free flow of information online, saying “the genie has been put back into the bottle”.

As Charles Mok explained, with over a quarter of the world’s internet population living within its borders, who are others to question the way China runs the web? “The last thing the internet community wants to see is China breaking away, so it has a lot of leverage,” he said.

It’s certainly likely that as scrutiny of China on the world stage grows, its clampdown on web freedoms at home will intensify, pushing some domestic online firms closer to breaking point. It is in the interests of the Party to at least have a fully functioning, if highly regulated, social media operating in the country as it can provide an excellent means for covert state surveillance.

“It provides a useful way of checking the temperature of public opinion and mechanisms to deal with local governance problems and abuses,” said MacKinnon.

“Because central government controls social media companies with censorship, then the effect is that it is strengthened while local government is weakened.”

One thing is clear, though. While the government is happy to reap the economic benefits of the internet, and although VCs are ploughing unprecedented sums into Chinese web firms, no industry is bigger than the Party.

It has in the past cut the internet entirely in areas where social unrest threatened its rule, such as Tibet in 2008 and Xinjiang in 2009, and wouldn’t think twice about throwing the switch again if its censorship regime failed to stem the free flow of information.

“Internet censorship and the ingenuity and creativity of the Chinese people in expressing their ideas online is a constant cat and mouse game,” said Philem Kine, senior Asia researcher for New York-based Human Rights Watch.

“The government has extremely deep pockets and almost limitless personnel and the bottom line is its over-riding priority is to maintain its monopoly on power. There’s nothing it’s not willing to pay for that.” ®