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SEPTEMBER 21, 2005

By Bruce Einhorn

A Cooler Look at Yahoo in China

The U.S. portal is getting pilloried for its role in the imprisonment of a Chinese journalist. The affair, however, isn't so simple

According to many critics of Yahoo (YHOO ), the U.S. Internet giant has sold its soul to Beijing. It operates one of China's major portals and has been moving aggressively to expand there. Witness its $1 billion deal to take over Chinese e-commerce company Alibaba. But this strategy has cost Yahoo more than money, contend press-freedom groups.

They've long accused Yahoo of censorship when in 2002 it joined other companies in agreeing to government-mandated restrictions on taboo topics like democracy and Taiwanese independence.

Now people are charging that Yahoo teamed up with Chinese security forces to help imprison a journalist. Early this month, Reporters Without Borders condemned Yahoo for giving e-mail information about Chinese journalist Shi Tao to China's security forces. The government used that data to send Shi, a reporter in Hunan province, to prison for 10 years on charges of revealing state secrets (see BW Online, 9/15/05, "Yahoo: Mistrust Is Popping Up").

POLICE INFORMANT?  In China, a state secret can be just about anything the government wants it to be, and Chinese who help publicize information the regime finds embarrassing often end up charged with illegally revealing confidential information.

According to Reporters Without Borders, Shi's "crime" was to send the text of an internal message that his newspaper had received about dissidents and the anniversary of the 1989 Tiananmen Square massacre to Web sites outside China.

"We already knew that Yahoo! collaborates enthusiastically with the Chinese regime in questions of censorship, and now we know it is a Chinese police informant as well," Reporters Without Borders wrote in a press release early September.

LEGAL OBLIGATION.  The organization is rightly outraged about what has happened to Shi. Who could support the idea of an American outfit helping to imprison a journalist in China? But the group seems to be directing most of its anger at Yahoo, and if you stop to take a look at the facts, you'll see that the situation isn't as simple as the critics argue.

First, some more on the accusations against the portal. "Yahoo! obviously complied with requests from the Chinese authorities to furnish information regarding an IP address that linked Shi Tao to materials posted online, and the company will yet again simply state that they just conform to the laws of the countries in which they operate," Reporters Without Borders charged in a Sept. 6 press release. "But does the fact that this corporation operates under Chinese law free it from all ethical considerations? How far will it go to please Beijing?"

But let's consider what happened in this case. The authorities went to Yahoo and said they were doing an investigation and needed information -- information that Yahoo was legally obliged to provide.

LAW-ABIDING.  It's important to note that Yahoo had no information about the details of the probe. According to comments made by Yahoo co-founder Jerry Yang at a conference in the Chinese city of Hangzhou on Sept. 10, the authorities didn't reveal to Yahoo the allegation or the alleged criminal's identity.

"We did not know what they wanted information for," Yang told reporters. "We are not told what they look for. If they give us the proper documentation in a court order, we give them things that satisfy local laws."

Should Yahoo have refused to cooperate anyway? Suppose you work for Yahoo in Beijing, and one morning the cops arrive in your office and say that they need you to hand over some information. They don't tell you the details of the case. For all you know, the security forces are investigating a spammer.

ASKING FOR TROUBLE?  That's not implausible. After all, spamming has become a major problem in China, and lots of junk e-mail that clutters the inboxes of Internet users in the U.S. come from or are routed through computers in China.

Or maybe the inquiry is about someone whom authorities suspect of peddling child pornography over the Net. Or a terrorist using e-mail to plan an attack. You just don't know. Should you refuse to cooperate anyway? Should Yahoo have a "just say no" policy, refusing to provide any information to the Chinese police, period?

Critics say Yahoo asked for trouble by putting its computers in China rather than keeping them offshore. "Yahoo! had a choice," writes Rebecca MacKinnon, a former Beijing-based reporter for CNN who blogs at "It chose to provide an e-mail service hosted on servers based inside China, making itself subject to Chinese legal jurisdiction. It didn't have to do that. It could have provided a service hosted offshore only. If Shi Tao's e-mail account had been hosted on servers outside of China, Yahoo! wouldn't have been legally obligated to hand over his information."

CRUCIAL MARKET.  MacKinnon is right that Yahoo could have located its servers overseas. But the service Yahoo provides would be much slower as a result, probably driving users to dump it in favor of other sites with servers inside China. That's no small matter.

The Chinese Internet market, already the world's second biggest, is likely to surpass the U.S. by the end of the decade. Morgan Stanley has just come out with a new report on China's Internet with a quote from eBay's (EBAY ) Meg Whitman. "Whoever wins China, will win the world," she says in the report.

It's not easy to operate in China, and Yahoo executives shouldn't lightly dismiss what role their company played in the imprisonment of Shi Tao. But at a time when other U.S. companies, including major rival eBay, are aggressively expanding in China, it's unfair to pummel Yahoo for not just walking the other way.

Einhorn is Asia economics editor for BusinessWeek in Hong Kong
Edited by Patricia O'Connell

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