Investing in censorship

08 Jul 2010

Should foreign investors invest in Chinese censorship?

If you’re an investor in any Chinese internet company – like search firm Baidu, telecom giant China Mobile or portal Sina, to name a few – your dollars are supporting China’s system of censorship.

It is an issue since Google declared earlier this year that it would no longer censor search results in China. Its China operating license expired on June 30 and its status is unclear. State media said Wednesday that a decision on Google’s future “may take some time.”

In the wake of the Google affair, Rebecca McKinnon, a Visiting Fellow at Princeton's Center for Information Technology Policy, says investors “should be clear about what kind of innovation they are financing.”

Officially, of course, the Chinese people “fully enjoy freedom of speech on the internet” – as long as they obey the law.

According to a recent white paper on the internet in China, those laws forbid “being against the cardinal principles set forth in the Constitution; endangering state security, divulging state secrets, subverting state power and jeopardizing national unification; damaging state honor and interests; instigating ethnic hatred…; jeopardizing state religious policy, propagating heretical or superstitious ideas; spreading rumors, disrupting social order and stability; disseminating obscenity, pornography, gambling, violence” etcetera, etcetera.

“Other than that, people are totally free,” writes McKinnon. She describes the system as “networked authoritarianism” – meaning that communist officials know they can’t possibly monitor all content online, and in any case see the net as a force for economic and social good. However, the party operates a multi-layered system of filtering, censorship and licensing to ensure that no threats emerge.

“[I]n the networked authoritarian state there is no guarantee of individual rights and freedoms. People go to jail when the powers-that-be decide they are too much of a threat – and there’s nothing anybody can do about it.”

The cost of running this system is outsourced to the private sector, which is where companies like Nasdaq-listed Baidu, the big three telcos and the major media and blog providers come in.

If you’re an investor who accepts that the Chinese authorities are free to block content that displeases them, this is not an issue.

If you believe that censorship is all about the powerful protecting themselves from the weak and is an obstacle to social and economic development, then it’s important to think carefully about whether to support those stocks.

One option is divestment; let the censors buy their own filters and spies.

The other is engagement, in using financial leverage to drive positive change. It’s hard work, and takes time, but you can feel that you are helping make a difference.

In either case, investors need to be aware just what they’re investing in.

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