Source: The Asian Wall Street Journal

Attempting to control the Internet in China, as U.S. President Bill Clinton once mused, was like trying to nail jello to a wall. But the truth behind the emerging debate over the Internet's potential in China may actually prove hard to pin down.

Optimists, including Mr. Clinton and both his would-be successors, usually claim that with China permitting thousands of Web sites to bloom, liberty should soon be squiggling in by cell phone or by cable modem, despite Beijing's crude attempts at control. Not only will authoritarian regimes such as China eventually buckle under the slippery advance of free ideas and information, but it'll be good for business to boot.

Skeptics, on the other hand, are increasingly pointing to the numerous reasons why an Internet-driven communist collapse might not be so easy. China's technical crackdown efforts are growing more sophisticated and more determined, they argue. It isn't just about firewalls and chat-room monitoring anymore: The government has been arresting Web site operators, shutting down Internet cafes, setting up Internet police squads, and appropriating increasingly available and advanced surveillance techniques.

The fact is, any link between the Internet and democratization in China will be significantly more complex than the terms of the current debate. Nonetheless, part of the current analytical gap is due to the fact that attention has primarily focused on China's control of information and communication. While this is important, it's only one of the tools China has at its disposal.

Both conventional wisdom camps are failing to pick up on some of the more subtle carrot-and-stick approaches China is brandishing at the private sector in order to maintain the kind of control Beijing deems necessary. What's more, these are strategies regarding the flow and control of information that China has employed in the past, with some measure of success.

Take Chinese President Jiang Zemin's speech of Aug. 22 to the 16th World Computer Congress in Beijing, during which he spoke in glowing terms of the e-commerce and development potential of the Internet. Noting that the speed and scope of free-information flows had "created a borderless information space around the world," Mr. Jiang at times sounded more like the leader of Microsoft than the leader of the proletarian masses.

At the same time, he warned that the same technology could deliver "an overflow of trash information" that could be "unhealthy to the point of being downright harmful." Then came Mr. Jiang's unabashed call for an international treaty aimed at promoting "healthy information" and censoring the bad stuff. Never mind the details; there weren't any.

Mr. Jiang's speech, delivered to a mostly foreign audience but carried widely on domestic television, was also intended to deliver a message to China's own fledgling Internet industry: We're prepared to help you out, as long as you don't push the envelope anywhere we don't want it to go. And homegrown Internet startups, faced with the prospect of capricious and stringent regulations -- not to mention a deluge of foreign competition -- will likely be more than happy to go along.

Traditional modernization theory has it that democratization goes hand in hand with economic development. But in Asia a carefully finessed domestic business elite can help shore up support for the prevailing regime, driving a wedge through the forces that might push for democratic reforms. It certainly worked well enough for Beijing prior to Hong Kong's 1997 transfer of sovereignty; despite a groundswell of democratic sentiment in the former colony, many of Hong Kong's business elite-- a majority of whom had significant interests in China -- were less than eager to get on Beijing's bad side. Ironically, the wealthiest among them, having made their fortunes primarily in property, have hijacked the city's Internet business, and with it control over Hong Kong's domestic Internet content.

No doubt the Chinese government is hoping to pull off a similar trick with its homegrown Internet elite, many of whom depend on their close ties with government officials to get their businesses off the ground. It'll have to iron out glitches in its strategy, of course: Regulations for domestic Internet companies are haphazard and confusing at best, repressive at worst.

Consequently, in the case of the Internet, where "content" supposedly reigns supreme, portal operators take pains to tread carefully, neatly sidestepping the publication of news that might get their licenses revoked. As the Western chief financial officer of the major Chinese portal Sohu.com revealed recently, his site tends to be "very much self-censoring," and probably wouldn't report a Taiwanese declaration of independence if such reportage would lead to a site shutdown.

The carrot-and-stick approach doesn't stop at domestic private capital. Foreign investors in China have also long been aware of the pitfalls of dealing with a regime that wants them there, as long as they play by the rules. And yet, it's not clear where all the bending over backward will ultimately get them. After Sohu.com registered with the U.S. Securities and Exchange Commission for a Nasdaq listing earlier this year, Beijing then decided that Internet content providers operating in China wouldn't be allowed to have foreign ownership. This forced Sohu.com to transfer its content-provision business to a separate, Chinese-owned company before it could gain approval for listing, putting a snag in its pre-initial public offering publicity. Moreover, it left those outside stock investors hoping for a slice of a Chinese content provider out in the cold.

Ultimately, China's attempts to manipulate the private sector will be only one of a number of factors determining the success and transformative power of the Internet in the Middle Kingdom. Domestic and foreign entrepreneurship might very well eventually play their hand in helping to open up the country's economic and political system. That said, trying to outwit the Chinese government in a game it's played successfully for years could prove an extremely frustrating and sticky business. Just try nailing that to a wall.