China Gives Facebook Another Try in Free-Trade Zone

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The South China Morning Post, a media company with headquarters in Hong Kong, reported Tuesday morning that the Chinese government made a “landmark decision” to end some of its online restrictions. At the end of September, the ban on Internet access to politically sensitive websites such as social media and American news agencies will be lifted within the Shanghai free-trade zone. Those within the zone will be able to access websites like Facebook (NASDAQ:FB), Twitter, and The New York Times.

At first blush, the news may not seem that significant — in many ways, it is just one more step toward the inevitable liberalization of the world’s second-largest economy — but the fact that the ball is rolling is, in and of itself, enormously important for both China and foreign countries, like the United States, that wish to invest or do business there.

For years, the Golden Shield project — the so-called Great Firewall of China — has aggressively censored and monitored Internet communications in China. Besides Facebook and Twitter, other popular sites blocked in mainland China include WordPress, YouTube, DropBox, Ustream.tv, Wikipedia, and pretty much anything pornographic. The telecommunications industry in China is dominated by three massive state-owned enterprises: China Mobile (NYSE:CHL), China Unicom (NYSE:CHU), and China Telecom (NYSE:CHA).

The decision to censor and monitor Internet use is largely political, but it is becoming increasingly clear that such heavy regulation on communication is a headwind for economic activity. The establishment of the Shanghai free-trade zone was designed to be a proving grounds for new economic ideas, business relationships, and policies that will help China’s enormous economy continue to grow and modernize.

However, it’s important to understand why the Chinese government is currently resistant to the idea of simply opening up unfettered Internet access to the entire country. The banning of Facebook and Twitter within the country can be traced back to 2009, when a series of violent protests broke out in Urumqi, the capital of Xinjiang province, a large autonomous region in northwest China.

The region, China’s largest administrative division, borders Afghanistan, Pakistan, Russia, Mongolia, and Kazakhstan, and claims a kind of cultural diversity that is not always at rest. In 2007, during the lead-up to the 2008 Olympic games in Beijing, local law enforcement began cracking down on suspected terrorist activity in Akto County, near the borders of Afghanistan and Pakistan in the west, raiding a training camp operated by the East Turkestan Islamic Movement and thwarting a suicide-bombing attempt against an airline.

Late in 2008, an attack led by the Uyghur separatist movement — the largest ethnic group in the Xinjiang province, who are Turkic and not Han Chinese — killed at least 16 police officers in Kashgar, on the far western border of the region. In 2009, a series of violet riots erupted in Urumqi. Much of the violence was targeted at the Han Chinese, and the People’s Armed Police — roughly equivalent to the National Guard — intervened.

In the wake of the 2009 riots in Urumqi, the People’s Daily Online reported that protesters were explicitly using Facebook to organize. What’s more, “Over 90 percent of Huanqiu.com netizens said that ‘Xinjiang independence’ activists, carrying out this type of ‘online activity’ severely violates China’s national interests and agreed that Facebook should immediately shut down the ‘Xinjiang independence’ online group.” That is, the use of social media platforms to organize for social change is frowned on.

The power of social media to catalyze upheaval has been well-documented over the past couple of years — most notably in the Middle East — and while Chinese officials have indicated that reforms are coming, they are exercising caution at every step. Understandably, the leadership would like to see the country modernize without riots, protests, or anything even approaching the widespread unrest seen in the Middle East.

Within the Shanghai free-trade zone, not only will access to these websites be unfettered, but foreign Internet providers will actually be free to compete with the state-run telecom companies.

The South China Morning Post quotes an unnamed government source as saying: “In order to welcome foreign companies to invest and to let foreigners live and work happily in the free-trade zone, we must think about how we can make them feel like at home. If they can’t get onto Facebook or read The New York Times, they may naturally wonder how special the free-trade zone is compared with the rest of China.”

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