It was all fun last February when a young man named Hu Ge posted an internet video wickedly satirizing director Chen Kaige's pompous period film, The Promise. The video became wildly popular and Hu found himself at the vanguard of China's emerging internet "spoofing" culture.
Unfortunately, some of the fun drained out when Chen threatened to sue Hu for defamation and copyright violations, and the online discussion rapidly turned nasty.
When another spoofer re-cut the schmaltzy Cultural Revolution propaganda film Sparkling Red Star into a stab at TV talent shows, the government took notice. Party newspapers editorialized and the State Administration for Radio, Film and Television (SARFT) talked of restricting internet uploads to two or three large portals that could be trusted to manage them.
Nearly 15 years into its commercialization, the internet's second entrepreneurial wind is being driven by individual publishing through blogging, video sharing and other social media.
While that has been a boon for innovative new businesses, not everyone is sanguine about so much empowerment. Under the banner of a "civilized internet", Chinese authorities are campaigning for good online behavior. Behind the scenes they are also flirting with regulatory changes with potentially serious implications for China's internet businesses.
This has led to some farcical steps, from cartoon internet police to Chongqing municipality's recent spoofing ban. More controversial proposals include a requirement that Chinese bloggers register their real names and ID numbers.
Keen to control
Such campaigns come and go but behind the current one there is real unease.
The Chinese government knows that internet media is rapidly becoming more mainstream, not only through video-sharing and blogging, but also through big-ticket emerging technologies like 3G, mobile-video and IPTV. These have the potential to turn China's 120 million internet users into half a billion over the next decade and turbo-charge what has been a fringe medium.
Unlike traditional media, the internet has remained relatively wide-open to foreign investment. This was tolerated as long as it was seen as "technology" or as a marginal adjunct to the mainstream media.
But the blurring line between traditional and new media makes foreign-backed internet companies look increasingly like Trojan horses wheeling toward China's fiercely protected mass media. Recent content licensing agreements, such as Baidu's deal with Viacom for online distribution of MTV videos, may stoke such perceptions.
As a result, the "civil internet" drive could transform into tighter restrictions on foreign involvement in the market.
The first signs of this have already emerged: the Ministry of Information Industry's (MII) recent "Notice Concerning Strengthening the Administration of Foreign-Invested Value-Added Telecommunications Business Operations" threatens the foreign/domestic parallel ownership structure that has legitimized so much foreign investment in the Chinese internet.
Strict enforcement of the notice or other new regulations could rapidly make life uncomfortable for a generation of foreign-backed Chinese internet startups. Financing might dry up and tougher limitations could be placed upon licensing of foreign content for internet distribution.
Previously mooted regulations that had died quiet deaths, such as SARFT's proposal to funnel video uploads through two or three large portals, might be resurrected. That would be a shame for outfits like video sharing site Tudou, which recently raised US$8.5 million of second-round financing from international investors.
Even if there is no immediate crackdown, a rise in risk may make investors raise the price of financing.
Optimists may hope that the freewheeling ethos of technology will trump the buttoned-down Chinese approach to media. With China placing such a premium on innovation in the 11th Five-Year Plan, many would expect the technology investment environment to remain liberal.
But in a climate of regulatory conservatism, economic nationalism threatening certain kinds of foreign investment, and calls for greater efforts in domestic content development, the internet is shrouded in uncertainty.
Big foreign internet players such as Microsoft and Google are also vulnerable, but they have learned the hard way to be acutely aware of Beijing's moods. They will be very sensitive about doing anything that makes their role as media companies more explicit and, for that reason, Google's purchase of YouTube won't likely have much of an impact in China.
Indeed, for all the noise about civility and concerns over foreign influence of mass media, insulation of local companies from foreign competition may well be a calculated objective. Restricting foreign investment might hurt the growth of some Chinese internet startups, but restricting the further entry of large, foreign internet companies and foreign content could help more established Chinese businesses.
Of course, with Chinese companies already soundly beating many of the global internet giants one hardly sees the point, especially if it comes at the cost of stifling China's energetic entrepreneurs.