Silencing the internet.

Photographer: GREG WOOD/AFP/Getty Images

China's Control Freaks Are Becoming a Drag

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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Inke is a Chinese startup that enables users to stream live video. It’s doing pretty well -- in April, mobile analytics firm App Annie said it was the seventh highest-grossing smartphone app on the planet. The company does face some costs that internet companies elsewhere in the world don’t, though. This is from a Bloomberg article last week on China’s live-streaming boom, and the government’s concerns that it could get out of hand:

The official scrutiny has forced companies to hire teams of censors; at Inke 1,000 people screen every showroom for content that’s critical of the government, pornographic or violent.

There are lots of people with jobs like this in China. How many? Well, here are a few estimates I found:

One big question is whether this vast campaign to restrict what the Chinese people read, hear and see can actually keep working. I don’t have a good answer for that. At least since the Tiananmen Square massacre of 1989, outside observers have been predicting that the Chinese Communist Party’s grip on power couldn’t last. They’ve been, uh, kinda wrong. The Party has at times loosened its control over public discourse (in the 1980s, and again from 1998 to 2009). But those periods of opening have so far always been followed by crackdowns -- and the country is in the midst of a doozy of a crackdown now.

Pouring all that time and talent into keeping China’s internet and media under control must exact some sort of economic cost. Given all the estimates above, it doesn’t seem unreasonable to speculate that China spends 1 or even 2 percent of gross domestic product on its information-control effort -- an expense that other major economies don’t face.

Then again, the U.S. spends 3.3 percent of GDP on its military, while, according to the World Bank, no other top-10 economy spends more than 2.4 percent.  This hasn’t exactly killed the U.S. economy. In fact, you could argue that high military spending has actually had a benefit. Defense spending on research and development has brought all sorts of positive spillovers -- such as the internet -- while the relative global stability provided by U.S. military dominance since World War II has surely delivered economic gains as well.

In China, I guess the positive argument would be that political stability born of repression has allowed the government to follow a consistent approach to development that’s delivered the most spectacular economic gains ever seen. With the economy growing at about 10 percent a year for years on end, spending 1 percent of GDP a year to guarantee stability seems like a pretty good deal.

The economy isn’t growing that fast anymore, though, and even the Chinese government acknowledges that the straightforward recipe of investment, exports and urbanization that drove growth for decades is mostly played out. Now the country’s leaders are counting on innovation to drive the economy forward. Here’s Premier Li Keqiang, from a speech in Tianjin late last month that I actually sat through:

We will guide economic transformation and upgrading through innovation. Innovation is the primary driver of development and an important part of supply-side structural reform. We need to further implement the innovation-driven development strategy, and step up efforts to build an innovation-driven country and a strong country in science and technology, so as to provide robust support for economic transformation and upgrading.

At the same time, the crackdown on free expression continues. This is from a recent People’s Daily essay by a top media regulator:

We must connect the adherence to correct guidance to every aspect of our work, implementing it in every element, in every position, in every procedure, through every responsible person, absolutely without leaving any hidden dangers or dead ends.

Can you really square innovation and transformation with a vast government effort to shape, obscure and suppress all information that doesn’t adhere to “correct guidance”? To some extent you can, clearly -- Inke and China’s legions of other, often quite-inventive internet companies are testimony to that. But it still seems like, as information becomes ever-more important to China’s economy, the economic drag exerted by the state’s information-control apparatus is only going to grow.

  1. That’s India at 2.4 percent. China spends 2 percent, Germany 1.2 percent and Japan just 1 percent.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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Justin Fox at

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Susan Warren at