Are U.S. Investors Financing Censorship in China?

While Google (s GOOG) continues to try and maintain a foothold in China — it was recently forced to change the way its Chinese website operates, after the government threatened to remove the company’s license — one expert in Chinese censorship says the real problem is actually Google’s competitor, Baidu (s BIDU). Baidu is working closely with the Chinese government to monitor and censor users, and U.S. investors and advisors are partly to blame for backing the company, says Rebecca MacKinnon, the co-founder of Global Voices Online and a former fellow with Harvard’s Berkman Center for Internet and Society.

MacKinnon testified today before the U.S.-China Economic and Security Review Commission at its hearing on “China’s Information Control Practices and the Implications for the United States.” In a blog post, she described her testimony and also posted a PDF of what she planned to tell the commission. In effect, she argues that by financing Baidu — which has an estimated 63 percent of the search market in China — and allowing it to continue collaborating with the Chinese government, U.S. investors are setting a bad example and making it harder for that country’s technology industry to resist government pressure to censor and monitor users.

The American investment community has so far been willing to fund Chinese innovation in censorship technologies and systems without complaint or objection. Under such circumstances, Chinese industry leaders have little incentive and less encouragement to resist government demands.

MacKinnon also describes how the government’s behavior towards Google — as well as its recent release of a white paper praising the use of social-media tools such as as Twitter (which China routinely blocks) — is an exercise in a new strategy she calls networked authoritarianism. In addition to well-known tools of censorship such as the “Great Firewall of China,” MacKinnon says, there is also a coordinated process of delegating censorship to the private sector, while appearing to be open to new tools and Internet services. This is the system that Baidu is a key player in, she says.

MacKinnon notes in her testimony before the Economic and Security Review Commission that Baidu has two U.S. directors on its board (they are William Decker, a former partner with PricewaterhouseCoopers, and Greg Penner, a partner with a California investment firm called Madrone Capital Partners), and that “U.S. investors provided much of Baidu’s
startup capital [and] U.S. institutional investors own significant stakes in the company.” Among those institutions are mutual funds such as Fidelity Management and Morgan Stanley Asset Management.

Baidu also recently got a $50 million investment from Providence Equity Partners, backers of the streaming-video service Hulu, to start its own Chinese version of the video site. MacKinnon says that she isn’t advocating that U.S. investors pull out of China or stop investing in companies there, just that investors “should be clear about what kind of innovation they are financing.”

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Post and thumbnails courtesy of Flickr user exfordy