China's Great Firewall blocks innovation and commerce
Howard Chao says Beijing should weigh the cost of maintaining its internet firewall; not only does it hurt consumers but, with the rise of cloud computing, it also blocks commerce
The digital divide between China and the West is growing. The internet world has developed into two distinct and formidable camps - the US internet giants, who are the global market leaders, and the Chinese domestic champions, protected by China's internet firewall and regulatory barriers.
This Great Firewall of China will not last forever and is already porous. But as long as it stands, it will hold back full integration of the global internet market and will hurt innovation in China. With the rise of cloud computing, these consequences will be even more significant.
For the past several years, the Great Firewall has blocked access from within mainland China to many of the leading global websites, including those for social media and video- and photo-sharing, as well as certain news sites. Because of hacking incidents, reportedly by Chinese actors, Google moved its search business offshore to Hong Kong, resulting in intermittent access to its services from the mainland and the blocking of others.
Thousands of Chinese internet censors also monitor offshore websites for sensitive keywords, and selectively block access to sites that use them. Chinese who use a proxy or VPN service can still access all offshore sites, but the government now has more sophisticated means to combat these tools.
China also restricts foreigners from investing in the domestic internet sector. In theory, under the law, Chinese internet companies are categorised as a type of telecoms company and foreign investors can only hold up to half their stock. In reality, Beijing has tacitly permitted Chinese internet companies to be de facto controlled and owned by offshore companies through "captive company" arrangements, using friendly Chinese citizens to hold legal title in the operating company.
However, this is a risky structure and has given rise to many disputes because the "friendly" owners sometimes become unfriendly. Using this structure, many major Chinese internet companies have listed in the US and Hong Kong. In reality, Beijing strongly prefers that these offshore parent internet companies be majority controlled by Chinese rather than big foreign multinationals.
