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Monday, 23 September, 2002, 07:28 GMT 08:28 UK
The cost of China's web censors
Internet Cafe
Is there a way ahead for internet cafes?

Edward Zeng has spent five years building up Beijing's best-known internet cafe chain - Sparkice - and the past 12 months shutting it down.

The really smart internet entrepreneurs come out of the teenage gaming parlours

Ken DeWoskin, PwC
Although profitable, the cafes had become too much trouble, he says.

"The government recently has very tight regulations."

Sparkice had 20 cafes, whose coffee and stylish interiors appealed to sophisticates and put them in the top end - and price bracket - of a sector more associated with Formica benches and bare floors.

Rougher venues charged as little as 1 yuan (12 US cents ) for an hour's surfing and were packed with teenagers.

Summer heatwave

China's authorities have spent the summer tightening up supervision of the internet, clamping down first on domestic web portals, then internet cafes and foreign-owned portals such as Google and Yahoo.

Every internet cafe in Beijing was closed for safety checks after a fatal fire in June.

Police scan PC screens
Thousands of security officers monitor the web

To win relicensing, owners had to accept tougher web filtering technologies, something industry sources believe was long planned.

Of 2,400, only 30 have reopened so far, and prices are at least four times higher.

The cafe closures came soon after police raids on major Chinese internet service providers (ISPs), followed by partial service shut-downs, enforcement of filters and stricter oversight of chat rooms and bulletin boards.

In September, the authorities shifted to blocking overseas portals Google and AltaVista, two of the most popular.

Filtering growth?

Human rights activists have long worried about China's digital censorship, but should economists care, too?

"You have a lot of talent, not to mention money, that is being directed into controlling rather than stimulating the use of the web," says Ken DeWoskin, a partner at accountants PricewaterhouseCoopers in Beijing.

China's internet, July 2002
45m internet users
3.6% of population
16m PCs connected
10.5 gigabits overseas links
New campus LAN
12m student users
Source: CNNIC

As well as sucking in human and financial resources, censorship slows down the rest of the economy.

"It's like an enormous tax in terms of time and cost that is introduced into the use of the internet for research... everything is just slow as molasses," he says.

China's elderly patriarchs see censorship as justified by the need for social stability to grow the economy and meet the needs of their huge population.

But many of today's internet billionaires started out as insubordinate slackers, similar to the high school students who crowded Beijing's internet bars and - allegedly - neglected their schoolwork.

"The really smart internet entrepreneurs come out of the teenage gaming parlours and compulsive teenage activity," says Mr DeWoskin.


But China's internet expansion programme is flourishing.

The country claims the world's second biggest online community, and economic growth was a healthy 7% last year.

The leadership wants information technology to provide 5% of China's gross domestic product by 2005, though analysts view 3% as more feasible.

Yahoo! stall in China
Yahoo! has signed a pledge to avoid "harmful content"

Analysts believe the latest internet crackdown on cafes and ISPs is about creating a framework of controls within which a sanitised sector can grow.

"It's about leverage," says Duncan Clark, managing director of Beijing-based IT analysts BDA China.

Digital spying is part of China's online economy that has received major investment.

Human rights activists believe the effort employs 30,000 people. Since 2000, they say, China's web filtering has overtaken Saudi Arabia's in scale. The firewall now surrounds the country, not just a few cities.

It works by scanning for suspect words as digital documents cross the international gateways and needs big banks of servers.

"Dozens if not hundreds of software engineers," are involved, says Stephen Hsu, chairman and co-founder of California-based software designer Safeweb.

He should know.

Safeweb monitors China's web spies in order to help Chinese surfers dodge censorship and gain access to blocked foreign websites.

Guerrilla warfare

It has licensed its anti-blocking software, Triangleboy, to the CIA, whose venture capital arm In-Q-Tel made a $1m investment in the company.

Small boy playing online game genius at work?

Triangleboy works by turning PCs outside China into gateways to proxy servers and emailing real-time lists of live proxy addresses to take surfers over China's firewall.

Ironically, Professor Hsu admits Safeweb itself has discussed controls on its censorship-busting software in order to gain access to US public funds for a proposed trial of its software in tandem with broadcaster Voice of America.

Safeweb "agreed with VoA to put a filter on the server side" to screen out pornography, said Professor Hsu, acknowledging that homosexual rights sites could be blanked too if they are deemed to have "adult content".

"In dealing with the political world here in the US, in so far as those resources are going to come from the US government we have to be realistic," he said.

Who helped?

So how much is China spending on digital spying and censorship?

It's impossible to know because the same technology is imported by multinationals to give their local plants the same protection against viruses and hackers as elsewhere, says BDA China's Mr Clark.

"There is a legitimate inflow for dual use technology," he points out, estimating the Chinese market at approaching $100m a year.

Sales by international telecoms firms to build China's internet backbones are huge and well documented - $1bn in 2001 for Cisco Systems alone, but every global IT engineer is in China.

It seems likely much of the technology being used by China's security services was designed and supplied by foreign firms. Speculation centres on how knowingly they did it, whether they modified it.

In Mr DeWoskin's view, the ties between the IT sector and intelligence services are so deep and long-standing that "99% of it is absolutely common firewall technology that is used by governments around the world".

Meanwhile, the Communist Party seems confident that acceptable commercial savvy will always find ways to flourish within the firewall.

Maybe they are right.

With investment from UK bank HSBC, Mr Zeng has refocused Sparkice as an e-commerce supplier for foreign retailers trying to source cheap, high quality goods in China.

See also:

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03 Sep 02 | Technology
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23 Jul 02 | Business
28 Jun 02 | Asia-Pacific
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