China’s Fractured Web, Part IV: Advantage China - The Digital Friendship Store
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The global internet system is being split into distinct jurisdictions with differing – often opposing – standards, actors and regulators. In China the internet has always been subject to the laws and standards of various Beijing regulators - often referred to as the “Great Firewall of China”. As the PRC gets better at restricting and filtering access, we are witnessing the emergence of a distinctly Chinese internet that will look vaguely similar to the rest of the world’s – but in fact perform different functions and have a completely new relationship between publisher and viewer.
Fractured by Design
China had been restricting access to international websites long before the recent blockade of Facebook and Twitter. Recent events – both in China and abroad – were probably a catalyst, but the latest government moves have more to do with improvements in network monitoring and control technology than they do with national security. The policy of media control in China predates the existence of the Communist Party. The real question isn’t ‘why is the PRC blockading the global internet?’ but rather ‘why did it take so long?’ A wide open, unregulated internet is at odds with China’s long-standing information policy – and recent moves simply bring the internet into harmony with laws governing radio, film, TV and print media.
China – though officially quiet about the blockade – seems to playing the morality card as justification for its internet blockade. (It’s all about protecting the kids from the evils of foreign porn.) The shot fired across Google.com’s bow (banned for a day or so this past June and still link-hobbled) was explained as an anti-porn move. This follows a familiar pattern among Asian gerontocracies to legitimize restrictive laws by impugning Western moral values. This argument sounds craven and hollow abroad where freedom and openness are considered worthwhile values, but plays very well to Beijing’s domestic audiences.
Fractured Web, Flourishing Profits
The blockade will be very profitable for Chinese firms – in the mid term. Companies like Xiaonei and Kaixin which borrowed heavily from western pioneers, will be the big winners here. They will solidify their Chinese audiences and keep Chinese ad-spends safely onshore. Chinese firms can continue using Western models as templates for new product development while effectively hobbling the overseas firms’ attempts to localize and refine their international offering for a Chinese audience. The local media firms will cooperate with ministry edicts and public safety standards – thus allowing them input into the very standards that will bar foreign competitors from access.
The PRC learned two bitter lessons from its recent involvement with big Western tech corporations. Microsoft taught Beijing that getting a foreign guest to leave once they have shared their technology is very difficult – as Windows and Office strengthen their footholds as the standards on Chinese desktops. Google introduced China to the harsh realities of math on big online networks: 20% of all Chinese viewers is still a large number (particularly when Baidu is wracking up a whopping 0% of the global market). Even if the international versions of Facebook and Twitter only command 10% of the Chinese internet market, that is still on the order of 20 million Chinese. A not-inconsiderable number – and one that is growing by the day.
But it’s only broken temporarily….
The problem with the notion that the Chinese net will somehow become more open after the October party conference is troublesome for two reasons. First - it is an unknown, and second - it is irrelevant. Twenty-somethings twittering about ‘how wasted they got last night at Sin’ can react quickly to the vacillations of policy and technology, but media buyers, software developers and corporate strategists have to take a longer-term approach. Blockades raise the costs of marketing to or from China. Now that the local Chinese net has been ring-fenced the global systems will never be whole again - and corporate decison-makers are required to factor the new risks and costs into their calculations. Every global IT and marketing department that chooses to operate in China will have to deal with two internets – two platforms, two budgets, two creatives– and two sets of legal standards.
What about VPNs and proxy servers? China is a nation of laws, even if enforcement is sometimes lax or selective. China can get very fussy about regulatory violations when it wants to – and telling a Beijing court ‘… but my secretary said that everyone does it’ probably doesn’t constitute a valid legal defense. Tweeting kids slipping through gaps in the firewall probably don’t have to worry – but the next iteration of ‘Rio Tinto-type’ defendants may have to face additional charges of violating the PRC’s media and internet regulations.
The Digital Friendship Store
In the bad-old days when the Chinese economy was isolated and foreigners were barred from holding RMB (and instead had to use FECs – foreign exchange certificates) Westerners visited the Friendship Stores. These were CCP versions of a department store – clean, brightly lit, well stocked and restricted to ‘foreign friends’ and the Party elite. While the rest of China struggled with shortage and inferior local goods, visitors to the Friendship story had access to a wide range of products – some traditional, and some imported conveniences. But something was always vaguely wrong with the Friendship Store – it was like shopping in a 20-year time warp. You could only buy what bureaucrats decided you should have access to – but it still made sense if there was shortage or structural impediments. When Deng Xiaoping opened China’s economy to the outside world, the Friendship stores folded in the face of normal competition. It seems that the Beijing notion of a properly outfitted shop couldn’t compete with market-driven businesses.
For the moment, the Chinese Friendship Net is delivering all the same services and products as the international internet – in some cases even more. But as the two internets develop and diverge, we will return to a situation where commerce in China becomes separate but unequal. Those caught on the wrong side of the digital border will not have access to new media or technology – while a digital Chinese elite will have VIP access to the global net.
China Always Fools Itself That It Can Always Fool the Foreigners
Chinese like to tell themselves that they can always fool the foreigners. This time, however, they may have outsmarted themselves. The sun is setting on China as a manufacturing center. China’s millions of unemployed grads are more likely to end up at a workstation in an office building than on a production line in a factory. In the short term, China’s fractured web offers the hope of long-term employment contracts at China’s new media firms. But in the mid-term, the fractured web makes China less attractive as a regional business center. It won’t be long before Taipei and HK start getting second looks as strategic ‘stand-off platforms’ for marketing to and from China. Chinese marketers behind the digital blockade will be the first choice for selling to the second-tier cities, but these people will be ineffective at international online marketing.
Imagine the year is 2015. You are the newly appointed marketing director at Alibaba or Li Ning headquarters in Shanghai, and your charge is to bring the brand global. Your HR department fills a room with 20 smart, bilingual grads who all have double-majors in English and International Marketing. You go to brief them on their new job — running a series of viral social-media campaigns targeting hip young Western decision-makers using Twitter and Facebook – but all you get is blank stares. ‘Oh,’ says one of them. ‘That’s like the American Xiaonei, right? I studied that in my info-tech class once, but I’VE NEVER ACTUALLY USED THEM.’
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Next: China’s Fractured Web, Part V: Advantage West — Facebook, Twitter & Google as ‘The Rebel Empire’
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