In China, No Great Wall Across The Net

Beijing wants to control online access, but enterprising Chinese are slipping through

It's Saturday morning in Beijing and a crowd of teenagers has filled the sunny offices of entrepreneur Zhang Shuxin. Wearing bright blue-and-yellow T-shirts bearing the name of her company, Beijing Information Highway Technology Co., they cluster around Gateway 2000 computers and watch as their classmates surf the Internet. The 20 would-be sales representatives will spend 16 hours studying computers and marketing before venturing out to find customers for the company's Internet hookups. "They're doing a very good job--it's their youthful enthusiasm," Zhang says. Since she started the program earlier this summer, trainees have sold 300 accounts.

Their existence may be precarious, but companies like Zhang's are quietly challenging the Chinese government's single-handed control of access to the Internet. More than 20 companies have won licenses to offer Internet access and hope to serve 2 million customers by 2000. Many have links to companies in the U.S. Others are defying the government by illegally getting access to the Net through China's academic networks.

NEW LIMITS. For these Chinese cyberpioneers, plenty of obstacles lie in wait. Government leaders in Beijing see the Internet not only as a tool for economic development but also as a threatening source of politically sensitive information. A conference on policing the Internet scheduled for Aug. 17 could lead to new limits.

But so far at least, Beijing hasn't attempted to shut down the independent Chinese operators the same way it has blocked big-name American companies. It is keeping out CompuServe Inc. and America Online Inc. by not allowing foreigners to take direct equity ownership of companies that provide online or other telecom services. That's helping the government's dominant phone carrier, the Ministry of Posts & Telecommunications (MPT), which is building an online network of its own. So too is another government operator, Jitong Communications, controlled by China's Electronics Industry Ministry. Jitong is rolling out its online service next month.

But it is increasingly difficult for the government to maintain complete control, particularly when international phone links allow easy access to providers in Hong Kong. So entrepreneurs like Michael Wan are trying to expand the market. A Beijing native who got his engineering degree at Stanford University, Wan founded ChinaNet InfoTech, a small Internet provider, last year. With just 800 customers, the Beijing company hopes to win over wary regulators. "Most don't understand how useful the Internet is," Wan says. To persuade them, he will offer hundreds of free accounts to members of the State Council, China's cabinet, as well as top editors in the state-controlled television and news services. Already, ChinaNet InfoTech is working with the Labor Ministry and the Tourism Administration to provide online services.

Wan hopes eventually to see a liberalization that breaks the grip of the MPT, the telephone company that serves as both regulator and competitor in China's Internet industry. For instance, the ministry has ultimate authority over granting commercial Internet licenses and also controls the international links necessary to get onto the Net. Only the MPT, Jitong, and the two academic networks have gateways of their own. All other service providers have been required to use the MPT's international gateway. This allows the telecom ministry to charge exorbitant rental fees, more than three times higher than those outside China.

"GARBAGE." Fearing a clampdown, some Net providers are policing themselves. Beijing Information Highway offers a service with Internet access, as well as a surprising variety of "chat groups" and online services covering topics from the Olympics to advice to the lovelorn. But Zhang has been quick to revoke accounts when "inappropriate speech" has appeared--usually harassment of female customers. Although she hasn't yet encountered antigovernment speech or pornography, Zhang says she is ready to deal with these, too. "There is a lot of information garbage on the Internet," she says. "If no one cleans it up, it will waste the user's time."

To preempt any government policies that might hurt her business, Zhang is organizing the August conference on policing the Net. It will bring together efficials from the State Security Ministry, the MPT, the Press & Publication Administration, and the State Council's Bureau of Legislative Affairs to discuss network information control. With the small number of accounts now in use, censors can search for key words or Web sites deemed dangerous. But as the number of accounts grow, the Net will become more difficult for the government to monitor. Even now, it's easy to call up a Web site of imprisoned dissident Wei Jingsheng's writings.

Some foreign companies are getting around Beijing's ban on outside participation by serving as technical advisers. Oakland (Calif.)-based UT Starcom, founded in 1990, is 30% owned by Softbank Corp., the Japanese high-tech power controlled by Masayoshi Son. UT Starcom is investing $10 million in a venture with Jitong and providing technical expertise. Service should start by October. "The Internet is very hot in China, but very few people understand it," says Western-educated Wu Ying, president of UT Starcom China.

China Unicom, the country's second-largest telecom company, owned by China's Electronics, Railways, and Power ministries, also has turned to an overseas company. Working with Sparkice I-Com Ltd., based in Toronto and run by Western-educated Chinese, it has just purchased a 51% stake in Beijing Information Highway. The companies plan to raise capital for an online venture by taking over a publicly traded U.S. company and issuing shares. This kind of "backdoor listing," now popular in China, would give Unicom-Sparkice access to financial markets without having to stage an initial public offering. This might help in a competition that is bound to become heated. "The company that can build the first information network to cover our whole nation will win the battle," says Yu Xiaomang, a vice-president at China Unicom.

Can these canny offshore companies get away with it? So far, the Chinese background of the overseas companies seems to have helped them pass muster with the government. UT Starcom's Wu simply says that the company stays within the rules, since it isn't the service provider. Besides, foreign participation "is good for business, and the country needs it," he says.

The biggest challenge ultimately may not be the government but the speed at which the Chinese market develops. Right now, "the true customer base is small," says Su Weichou, deputy director of the Beijing office of the U.S. Information Technology Office. "People's education levels are generally low--particularly in English." Internet providers may need to wait for stripped-down, inexpensive devices that lack computing power but offer online access. A Chinese-language browser is also needed before the market really takes off. Despite these inevitable growing pains, for the first time it is possible the Chinese will be able to get onto the Net--without the government acting as sole gatekeeper.

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