China Gags the Web and Stifles its Own High-Tech Ambitions

Two months ago, China's high-technology and Internet industries appeared ready to burst onto the global stage. As part of China's deal with the United States to enter the World Trade Organization, trade negotiators agreed to remove some of the most stifling restrictions on foreign investment in China's telecommunications, high-technology and emerging Internet industries.

But even as trade negotiators bargained, Chinese technology bureaucrats threatened to clamp down in new and different ways. Over the last week, they at last played their hand. First, they leaked news of plans to require entrepreneurial Internet companies to seek approval for listings on foreign equity markets. Days later, the Communist Party newspaper, People's Daily, announced that all information released over the Internet must be vetted and approved by China's state security apparatus.

Chinese authorities are worried that the Internet will create a forum for free expression. This poses an intolerable threat to a regime, such as China's, that thrives on coercion and control.

But amid the clamor over what these restrictions will mean for free speech, we should not lose sight of what these steps reveal about China's prospects for becoming a great economic and military power.

For months, Americans have been deluged with headlines about China's high-technology ambitions. Newspapers have blared allegations of sensitive technology transfers and nuclear espionage at U.S. weapons labs.

It is true that restrictions on Internet companies signal a new effort to clamp down on free expression. But perhaps more important, they show that China's government is shooting its own ambitions in the foot.

The Chinese government aspires to make China a leader in high-technology. So why does Beijing take steps, such as restricting access to foreign capital, that fly in the face of virtually everything we have learned over the last 30 years about how to promote technological innovation?

China's new restrictions stand almost every lesson of the global high-tech economy upside-down. Innovation cannot be managed by bureaucrats. It is bottom up, not top down.

The answer to why Chinese leaders persist in this approach lies in perhaps the only two principles that have remained constant in 50 years of Chinese technology policy: "Whatever they have, we must have too" and, "At all costs, avoid dependence on foreign investors and suppliers."

The persistence of the first principle shows why Chinese policymakers repeatedly take steps to stifle entrepreneurship, even though they almost certainly know from experience that they should not.

Beijing's continuing commitment to the second principle explains its restrictions that close the doors to foreign capital, even though Chinese technology industries badly need it.

Three decades into the Silicon Valley miracle, American entrepreneurs and venture capitalists take it for granted that innovation thrives best where government lets markets work unfettered. China's two principles directly contradict that view, and they remain central beliefs of most Chinese policymakers and bureaucrats.

On the first principle, China displays a persistent faith in "managed" innovation and has taken few steps that might allow true entrepreneurship to thrive.

On the second principle, China's concessions to enter the WTO seemed at last to signal a dramatic break with its commitment to freedom from external dependence. But the new restrictions that China is setting into place — especially on foreign capital — show how much of the old policy thinking persists.

Beijing has done more this past week than strike a blow at free expression. Equally important, it has undercut its own high-tech ambitions by reinvigorating some of the most unproductive technology policies of the past.

While these steps will consolidate the government's control, private firms and foreign equity represent the best hope for the regime's ambition to remake China into a global high-tech leader. China's private high-tech firms are networked into a borderless world of strategic alliances with engineers in Palo Alto, California, and venture capitalists in Boston. They participate in technical innovation as a collaborative project from the ground up.

These had been entirely new developments. And they have been taking place beyond the scope of old-style technology planners and "target-setters." They lie at the heart of China's new private economy.

Ironically, by stifling the best hope for a new industrial style in China, Beijing is taking steps that will ultimately defeat its leaders' dreams of technological modernization and Great Power status.