Ties That Bind - Bay Area Council Economic Institute

An Electronic Public Square
Bay Area-China Trade: Behind the Numbers
Most internet access in China is via mobile phone, although computer use has grown steadily as
well as global computer prices have fallen. An explosion in chat, blogs and online communities is
driving mobile phone and internet growth in a society where communications and public discussion
have historically been top-down and tightly regulated.
Faced with this challenge, 11 government agencies employ an estimated 30,000 censors, and the
major portals and search engines in China all have some degree of in-house self-censorship.
Internet censorship in China surfaced as a political issue in the U.S. in 2005, after it was reported
that Cisco Systems filters, designed to block the spread of worms and viruses, enabled the Chinese
government to block viewing of pro-democracy, Falun Gong and other sites; that Microsoft,
Yahoo! and Google censored keyword searches for the China market; and that Yahoo! provided
Beijing with email and registration information that led to arrests of journalists and political
activists. Cisco argued that its filters had not been modified in any way to encourage censorship
and that blocking capability was critical in keeping networks up and running. Microsoft, Yahoo!
and Google argued that their global search engines on balance broadened access to information
in China, and that they could not practically avoid compliance with Chinese law. Competing
Chinese portals capitalized on the negative publicity. Yahoo! lost market share with news
of the arrests, but has since regained it through its affiliation with Alibaba.
But a bigger picture suggests that internet censorship in China may be a losing battle. A survey
by internet portal Baidu.com estimates that 16 million Chinese maintain nearly 37 million blogs,
personal websites hosting discussion of all kinds of topics from the personal to the political, with
links to other blogs and sites. Live personal interchanges are socially preferable in China to
automated email and voicemail; some 87 million computer and phone users communicate by
instant messaging. In 2005, mobile phone users sent 329 billion text messages, and January-April
2006 volumes grew by 46.5% over the same period a year earlier, to 132 billion messages. Search
engines receive 360 million requests daily. China had 115 million internet search users in 2005,
and the number is forecast to grow to 187 million in 2007. In a very short time China has become
the world leader in numbers of mobile phones, cable television subscribers and installed
phone lines, according to Morgan Stanley.
The Internet Begins to Pay for Itself
‘Monetizing’ various aspects of China’s internet—listings, advertising, e-commerce—has been a
major concern. Revenues from these activities have grown significantly in the past year. Shanghai-based
consultancy iResearch says online ad spending has increased 75% annually since 2003,
and is expected to top $812 million in 2006 and $1 billion in 2007. Still, online sales represent
only 2.3% of total ad revenues, suggesting enormous growth potential. A Tsinghua University
report says the leading web portals saw 25% ad revenue growth during 2005. Sohu.com Inc.,
China’s third largest web portal behind Sina Corp. and Google, reported 35% growth in first
quarter 2006. Thanks to sports, entertainment and game tie-ins, Sohu now gets two-thirds of its
revenues from advertising, double the share in 2003.
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