China's Internet Gold Rush

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Early in 1998, William Ding, then 26, took a bet on his future. After four years of writing software in the southern Chinese city of Guangzhou, he had saved $60,000--enough to pay for him to study at Stanford. China's Internet was then in its infancy, with fewer than 1 million users. But he sensed it was about to explode, and decided to stay in China and set up his own Internet company, Netease.com

The bet has paid off--so far. Netease.com is one of the top portals in China. With free e-mail, news, auctions and a job site, it claims to have upwards of 6 million page views a day. Netease.com and Sohu.com a portal run by Charles Zhang, are vying to be the first Chinese Internet companies to list on the NASDAQ. The payoff will be crazy, 10-digit money. But Ding still has to deal with the China Uncertainty Principle: bureaucrats in Beijing, whose treatment of the Internet is even more erratic than the movement of the markets.

The Internet has hit the Chinese government with all the force of an electromagnetic burst. The number of Net users, now 10 million, is doubling every six months--the fastest growth in Asia. Money is pouring in from U.S. venture capitalists. There are 50,000 Chinese domain names. By some calculations, China will have the second largest population of Web surfers in the world, after the U.S., by 2005. Such a frenetic buildup would delight most governments. It terrifies Beijing's officials, who fear the Net will vaporize their power over the masses. "It is not like anything they have ever experienced before," says Ding.

China has become the cyberworld's hottest battlefield. On one side are the control freaks of the Communist Party, who believe anyone who challenges them belongs in a labor camp for 10 years. On the other side are the tech-savvy Net entrepreneurs, who expect anyone who challenges them to set up his own website within the next 10 minutes. The outcome of the conflict will not just determine whether Ding or Zhang becomes a billionaire. Dotcoms highlight the central contradiction of China today--the drive to modernize without giving up one-party rule. The government wants the economic benefits of the Internet without the freedom it gives. The information revolution, minus the revolution.

From the beginning, bureaucrats have desperately sought ways to manage this contradiction. In 1997 they set up an intranet with China-only access. It was quietly abandoned. Last month came strict regulations on Internet content and encryption technology. Members of the cyberelite in China yawned. They've perfected the art of finding ways around the government's lockdowns on particular sites, and most companies think the requirement to reveal the encryption codes they use to protect commercial secrets and online merchandising will not be enforced. But after trailing behind the e-curve for so long, Beijing has finally worked out where the Net is most vulnerable: in its voracious appetite for capital.