Rude awakening

"Our number-one goal here by far is to serve Chinese users, who want useful information on the internet." So said Google CEO Eric Schmidt, quoted in the People’s Daily following the launch of the company’s China service in 2006.

Four years later, Google’s professed ambitions for China are on the threshold of ruin. In a bombshell blog post on January 12, David Drummond, Google’s senior vice president for corporate development, announced that the company was re-evaluating its business in China due to concerns about hacking and censorship. Google, he threatened, might have to withdraw from the country.

At time of writing, Google’s fate remained in the balance, but it is clear is that the internet in China is in transition. We are entering a new era of the domestic internet market, one which is largely devoid of major foreign brands.

Fast starters

In early 2006, this seemed an unlikely outcome. Yahoo, under Alibaba’s management, still had a substantial chunk of the Chinese search market thanks to its licensing deals with local portals. EBay, though embattled by Taobao, was still operating in the country. Just a week after Google’s announcement, Chinese President Hu Jintao publicly proclaimed himself a "friend of Microsoft" during a visit to Redmond.

Today, with Google in retreat, eBay long gone and Yahoo China a speck in the Alibaba empire, Microsoft is the last of the foreign internet majors standing in China. Its durability owes much to the fact that Windows and Office, and not the internet, are the core of its business here.

Direct Western involvement in the Chinese internet is otherwise largely limited to localized versions of some content sites such as About.com, the lingering ghosts of imported social networks like MySpace.com, and stakes in local startups and the handful of overseas-listed Chinese firms.

The near-total banishment of Western internet firms owes much to two factors. The first was a poor grasp of the local market. This was the undoing of Yahoo and eBay, both of which failed to leverage local partnerships and build properties that resonated with Chinese audiences. It has also hamstrung the imported social networks, none of which has managed to capture the buzz of domestic players.

The second factor was the Chinese government’s belated realization that the internet was a Trojan horse for mass media, long an area off-limits to substantial foreign involvement. The rise of social media, with its ability to circumvent official news and to serve as a powerful organizing force, rammed this reality home.

Censorship, though a favorite bugbear of Western constituencies, played only a supporting role in this drama. Forced to please both foreign and Chinese stakeholders, Western internet companies had to fight the common perception that their offerings in China were second rate versions of their overseas products. Other regulatory tools, such as selectively applied "anti-pornography" drives, also kept foreign players off-balance.

Commercial protectionism, a charge that has been recently leveled at the Chinese government as a result of its censorship of many foreign social networks, is more fringe benefit than driving factor. Beijing wants an industry dominated by local players, but this is because they are considered more reliable stewards of public opinion. For this reason, complaints about China’s restricted internet market to the WTO will achieve little.

An internet apart

The result is that China’s internet increasingly stands apart, dominated by homegrown players and linguistically isolated from much of what is available elsewhere.

This is not in itself a catastrophe. Most Chinese internet users won’t notice or care that they increasingly inhabit the web’s largest walled garden. There is for the moment enough ingenuity and entrepreneurial spirit in China to ensure a lively internet, and many domestic users are well served by local options. E-mail still goes in and out, as do other essential services.

But the government’s desire to tightly manage the internet comes at a price. Eager to herd social media into the arms of large and trusted domestic internet brands, the government has trampled upon many startups, including virtually the entire Chinese microblogging industry.

There will be a long-term cost to be paid in innovation and alternatives. For one thing, as more and more actual computing work shifts into "the cloud" and is delivered as internet-based services, the line between recreational social networks and actual productivity and collaboration tools will blur. Google Docs, a free alternative to Microsoft Office that is tightly integrated with Google’s other services, is already a casualty of the Great Firewall. Chinese alternatives will surface, but choice will be limited, especially for groups working across borders.

By largely excluding foreigners from its market, China has also threatened the international prospects of domestic champions like Tencent and Shanda. Both are establishing beachheads in the US, and may fall afoul of an administration increasingly suspicious of Chinese companies and paranoid about cyberspies.

The final tragedy is that social media had the potential to be a tremendous bridge between China and the rest of the world, enabling Chinese and global internet users to inhabit at least a partially shared universe. That bridge is now only the slenderest of threads. China may have succeeded in building an online empire largely isolated from direct foreign influence. But the golden ages of Chinese history have been those periods when the empire has been most open to foreigners, and most willing to freely exchange ideas with them.

An empire isolated is often an empire in decline.