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Published: JUN 28, 2006 - 4:20PM PDT

Special Reports
Special reports are articles collecting the most relevant public diplomacy articles and information on topical issues, and are posted periodically by our research team at the USC Center on Public Diplomacy.

U.S. TECHNOLOGY COMPANIES IN CHINA: CONTROVERSY, LEGISLATION, & IMPLICATIONS FOR CORPORATE DIPLOMACY
JUN 28, 2006 - 4:20PM PDT
by Jade Miller

Peter Winter also provided research support for this report.

Over the past two years, Cisco, Microsoft, Yahoo, and Google have entered the Chinese Internet market, providing online or information-related products utilized by the Chinese government to enforce Chinese information censorship laws, conduct online surveillance, and restrict access by Chinese citizens to certain internet sites.

Cisco Systems, for instance, sells equipment that enables online surveillance in many markets, one of which is the Chinese police. The Google product that has generated controversy is Google.cn, its search engine based in mainland China. Its location on Chinese soil means that Google.cn filters search engine results to abide by Chinese censorship laws, censoring some results for "politically sensitive" terms such as "democracy," "Tiananmen," or "Falun Gong." Censored search results are accompanied by a notice alerting the user to the absence of some information on the page.

Microsoft's China controversy stems from censorship on its Chinese blogging tool. One well-known blog (by "Michael Anti" ), hosted on servers located on American soil, was removed in response to a request from the Chinese government. Additionally, searches for "democracy," "human rights," and other terms which are considered "politically sensitive" in China are rejected outright by the system. Yahoo also offers blogging services to mainland China internet users, but does so through a Chinese server. On at least one occasion, Yahoo released to the Chinese police, at their request, identifying information about a dissident blogger using a Yahoo blog. This blogger, Shi Tao, was later arrested and imprisoned with the aid of this information.

Public outcries against these IT companies first emerged in the blogosphere and among human rights organizations. Editorial and op-ed pieces in the mainstream news media soon followed, reaching critical mass in the Fall of 2005.

In response to these criticisms, in February 15, 2006, Representative Christopher Smith (R-NJ) led a Congressional subcommittee which conducted hearings featuring testimony from all four IT companies defending the conduct of their respective organizations. One day later, Rep. Smith introduced the HR4780, a bill, still under consideration, which would make many of the current censorship-oriented operations by the four technology giants illegal. If passed, this bill will, in effect, preclude U.S. IT companies from operating in any countries with internal restrictions. Proponents of the bill argue that service provision to countries such as China who engage in censorship is not only morally reprehensible for American firms but it should be made legally untenable as well.

Responses to the issue and the proposed legislation has been fairly uniform. Some have pointed out that this controversy is bad publicity for China, as it has brought their information management and control practices into the international spotlight. Others have focused on the negative implications for the American and world economy if GOFA passes. Most of the discussion, however, has focused on the responsibility of American corporations to represent the moral values of the United States when doing business abroad.

After recent controversies over the morality of business practices in other areas, such as the Enron scandal, the responsibilities of U.S. based corporations as "responsible corporate citizens" have come to the forefront. While considerations regarding economic concerns have been mentioned, the dominant theme of discourse in both Western and Asian media outlets has been that American corporations have a moral obligation to uphold certain American values even when operating under foreign law in foreign markets. An echoing cry has been that China has already changed U.S. corporations more than such corporations could ever hope to change China.

Even if the Global Online Freedom Act does not pass, as many have suggested it will not, the message for corporations is clear: they are expected by both the American government and by private citizens worldwide to represent American values by nature of their own national identity. Chinese IT companies will experience pressures of a different sort; in the eyes of the world, American companies are held to a different standard and are expected to live up to that standard no matter the market in which they are doing business and despite the pressures of transnational capitalism.

The following is an aggregation of key articles and commentary about the U.S. technology companies in China controversy. If you would like to post your reactions and ideas about this issue, you can add your comments at the bottom of this page.

CHINA

US draft bill targets China censorship
(Stuart Biggs, South China Morning Post, February 20, 2006)
Extending the coverage to foreign internet companies listed in the US could have serious implications for leading Chinese search engine companies such as Baidu.com, Nasdaq-listed Sohu.com, Netease.com and content provider Tom Online. It could also force other technology firms to look to alternative markets such as Hong Kong or Shanghai rather than risk financial penalties for violating laws in the US. (Purchase Required)

Let a thousand blogs bloom
(Rosemary Righter, The Times (U.K.), February 16, 2006)
Internationally, China has found itself in the dock next to Google, after the company’s loudly derided decision, in return for the privilege of official registration, to help the cybercensors who are building the Great Firewall of China to emasculate its Chinese search engine. This may not have been Google’s smartest move... It may not have been China’s cleverest idea, either. This devil’s compact has given the Communist Party’s grim drive to control all aspects of the media the widest possible publicity in China itself.

China's Responsibilities
(Washinton Post, February 15, 2006)
China needs to understand that neither Congress nor U.S. public opinion is likely to allow American companies to carry on this collaboration forever...China is now too big to get away with a minimalist definition of its obligations to the outside world. Its currency policies affect global trade imbalances. Its intellectual property protections affect the value of copyrights worldwide. Its 100 million Internet users are bound to attract the attention of Western advocates of free speech and their allies in Congress. Riches and power bring broad responsibilities.

Wall Street Journal
(Jason Dean, Wall Street Journal, February 15, 2006)
"Our practices are completely consistent with international practices," said Mr. Liu, deputy director of the State Council Information Office's Internet Affairs Bureau. The rare comments appeared aimed at rebutting mounting criticism in the U.S. and elsewhere of China's restrictions on the Internet and of the willingness of foreign Internet companies to comply with those limits. (Search and Purchase Required)

U.S.

Exporting Censorship
(Xeni Jardin, The New York Times, March 9, 2006)
One of our most laudable national goals is the export of free speech and free information, yet American companies are selling censorship. While some advocates of technology rights have proposed consumer boycotts and Congressional action to pressure these firms into responsible conduct, a good first step would be adding filtering technologies to the United States Munitions List, an index of products for which exporters have to file papers with the State Department. While this won't end such sales, it will bring them to light and give the public and lawmakers a better basis on which to consider stronger steps. If American companies are already obligated to disclose the sale of bombs and guns to repressive regimes, why not censorware? (Subscription Required)

Beating back the Internet censor
(The Standard (Hong Kong), March 6, 2006)
US politicians, riding waves of anti-China sentiment in what is becoming America's global war on Internet censorship, want to outlaw the companies' collusion...The move to pass the Global Internet Freedom Act, while unlikely to produce an actual law, is another sign of the underlying China paranoia that could end up hurting trade relations and might provoke firms to think twice before installing IT systems in Hon Kong... Sin worries that US Internet firms will remove their servers from Hong Kong in response to the proposed law. It might also make large-scale funds wary of investing in state-owned IT companies listed on the US markets because of the potential legal trouble.

Browsing in China; Take down the Internet's new Great Wall
(Helle Dale, The Washington Times, February 22, 2006)
The U.S. companies argued during the hearing for stronger U.S. government involvement in negotiating with the Chinese government on their behalf. Hopefully, the newly established Global Internet Freedom Task Force of the State Department will be a useful tool in that regard. They are not so likely to appreciate Mr. Smith's Global Online Freedom Act of 2006, which nonetheless makes good sense. Mr. Smith's bill mandates placing the servers of the Internet companies outside China. The tradeoff is the decreased speed by which Internet users can access Web sites, but they win a protection of their rights - and a guarantee of certain principles that the United States as a free society has the obligation to uphold.

Logging Off on China
(Robert Reich, TomPaine.com February 22, 2006)
Despite the bluster, Congress showed that it is more interested in Chinese contracts than democracy.

Apartheid boycott offers lessons for US tech giants in China
(Michael Logan, South China Morning Post, February 21, 2006)
But that does not mean we should ignore a wrongdoing when one exists. As a result of Yahoo's actions, at least two men have lost their liberty, while Cisco, Microsoft and Google have held back the forces of liberalisation and freedom by censoring the internet. When the US Congress was debating whether to give the mainland permanent most favoured nation trade status, American companies said their presence in the market would change China. Yet, in the case of the internet companies, China has changed them.

Enough Shame to Go Around in China
(Joe Nocera, New York Times, February 18, 2006)
The companies say they have to abide by the laws of the countries they operate in, even if those laws sometimes violate Western standards....As for this argument, listen to Jeffrey A. Sonnenfeld, the senior associate dean at the Yale School of Management. " 'When in Rome' is not a justifiable term for doing business," he said. There are core Western values that American companies need to uphold no matter what local law dictates. The best parallel, he suggested, was the eventual refusal of many American companies to work with the apartheid regime in South Africa. (Subscription Required)

Obeying Orders
(Washington Post, September 18, 2005)
Over the past two decades, many have argued -- ourselves included -- that despite China's authoritarian and sometimes openly hostile government, it is nevertheless right to encourage American companies to work there. Their very presence has been thought to make the society more open, if not necessarily more democratic. If that is no longer the case -- if, in fact, American companies are helping China become more authoritarian, more hostile and more of an obstacle to U.S. goals of democracy promotion around the world -- then it is time to rethink the rules under which they operate. (Purchase Required)

BUSINESS DIPLOMACY

Businesses help China's government abuse rights (Chang Ching-hsi The Taipei Times, June 6, 2006)
The CCP is capitalizing on the enormous business opportunities that have followed on China's internationalization to entice the international community to help it suppress human rights. Companies such as Yahoo, Google, Microsoft and Skype have agreed to install keyword software to enable the filtering out of unwanted information from their networks.

Do No (Online) Evil
(Chris Smith, The Wall Street Journal, March 2, 2006)
We are at a point where leading U.S. companies like Google, Yahoo, Cisco and Microsoft have compromised both the integrity of their product and their duties as responsible corporate citizens in order to compete in the world's largest market. The ability to communicate openly is the key to unlock the doors to freedom for those who cannot feel its touch, and IT companies can help to provide that. As Americans, we need to empower those who seek the path of democracy, not stifle their ability to speak out.

Tear Down China's Walls
( Sentinel & Enterprise (Fitchburg, MA), February 24, 2006)
IBM tried to be good Nazis in Germany and good Americans in the United States... Google and other Internet companies want to be good Americans in the U.S. and good collaborators in China. They want it both ways, but there are certain things we must not do. (Purchase Required)

Call for clearer human rights standards in business
(Alison Maitland, Financial Times, (UK) February 28 2006)
The furore over US internet companies’ compliance with censorship laws in China is a good example of why the corporate world must have clearer human rights standards, says John Ruggie, the UN secretary-general’s special representative on human rights and business. (Subscription Required)

GOP rift over US firms in China
(G. Jeffrey MacDonald, Christian Science Monitor, February 17, 2006)
It is a tenet of American conservatives that US business has a pivotal role to play in promoting freedom abroad. Trade brings dialogue. Commercial interests build a counterweight to political ones. But sharp questioning by a House panel this week of US technology firms in China has exposed a deep rift among conservatives about how to accomplish that goal. That rift, in turn, is complicating efforts by the Republican-controlled Congress to regulate what US tech firms can do abroad.

Congress's dilemma: When Yahoo in China's not Yahoo
(G. Jeffrey MacDonald, Christian Science Monitor, February 14, 2006)
Because it gave up a majority stake of its China service to a Chinese company Alibaba.com, Yahoo argues that decisions about cooperating with Chinese officials lie with that company, which has obligations to obey Beijing, not Washington... Some activists say Yahoo could still have to answer for Alibaba.com's actions, perhaps along the lines of antibribery laws that hold parent companies accountable for the actions of their subsidiaries. Yet because Yahoo only owns a minority stake, Congress would need to raise the bar, experts say. It would have to codify the duites of minority stakeholders in foreign companies. So, as shareholders or board members, Yahoo would need to steer a foreign firm away from assisting governments with practices that constitute human rights violations -- or else sell their shares.

Search Engine Diplomacy
(Adam L. Penenberg, Slate, January 31, 2006)
Instead of promoting the mantra that information wants to be free, Google et al., have done the opposite in China. They have tapped native Chinese to run their operations there, which plays well in Asia—many Chinese believe that Google's pro-censorship policies are a sign they respect local authority. Although this "sinicization" process is pragmatic, it means the company's values will reflect those of China, not America.

Why Google in China makes sense
(Bill Thompson, BBC News, January 27, 2006)
Even if the primary motivation for going into China is that it makes commercial sense for the company - as indeed it must do, since US law is quite harsh on boards that take actions which could damage shareholder value - it also makes political sense. Supporters of free speech and open societies should be supporting Google rather than lambasting it.

The Great Firewall of China
(Tina Rosenberg The International Herald Tribune, September 18, 2005)
But let's not pretend that foreign investment will make China a democracy. That argument was born out of self-interest. Because China is too lucrative a market to resist, Western businessmen have ended up endorsing the party line through their silence - or worse. They are not molding China; China is molding them.

PUBLIC OPINION

Censorship in China divides Americans
(Therese Poletti, Mercury News, (San Jose, CA) February 27, 2006)
Americans are sharply divided over whether Internet companies like Google and Yahoo should allow their content to be censored in China, according to a survey to be released Tuesday by a Michigan-based think tank. About 47 percent of 1,056 respondents said they believed content companies should not allow such censorship, while 40 percent believed companies should comply with restrictions. Thirteen percent were undecided.

BLOGOSPHERE

Some questions for Yahoo! about China
(Rebecca McKinnon, RConversation, May 1, 2006)
To pass off responsibility to Yahoo!'s Chinese partner Alibaba is not a legitimate response, either, because if such collaboration continues, it will be happening under Yahoo!'s brand, and thus by implication with Yahoo!'s consent and approval.

Global Online Freedom Act: needs improvement
(Rebecca McKinnon, RConversation, March 2, 2006)
We should not allow American companies to act in ways that contradict fundamental American values. But we must act in a way that respects the rights of people in other countries as much as we respect our own rights. The Global Online Freedom Act of 2006 is the beginning of a conversation about what needs to be done. But in its current form, it should not be the last word.

Sounds scary: The Global Online Freedom Act
(Richard TPD, The Peking Duck, February 16, 2006)
Unfortunately, the sad fact is that adhering to an American code of ethics and doing business in China is like trying to mix oil and water. You simply have to bite the bullet and pay the bribes and deal with the corruption and facilitate the censorship if you plan to set up shop there. I can't see how this can be legislated away by a piece of paper in Washington.