According to the China Internet Network Information Center, 420 million Chinese citizens – over a third of the country – are internet users. But while that’s an impressive number, it opens up a box of trouble for a government bent on domination at home.
China watchers in the west have long foreseen the Communist party’s struggle to control the virtual monster it unleashed. Really, it was inevitable.
Sure enough, the dissent that began in Tunisia spread to China, and it did so via the internet. In response, Beijing predictably stepped up web censorship over the past few weeks to discourage protests.
It might not have had to put so much effort into those restrictions if not for the rapid growth of microblogs this year. Their expansion has greatly increased the number of people taking part in online debates and the speed at which information is spread.
The growth of these microblogs indicates that Chinese internet users have adapted to the censorship of politically sensitive topics…
Chinese Social Media
Perhaps Beijing counted on how its citizens mainly use the web for entertainment. That would explain why it has not only allowed microblogs but even nourished some of them.
Twitter, LinkedIn and other western social media sites are strictly prohibited. But local businesses have thrived, in part, because of that… including:
The QQ instant messaging tool, which is owned by Tencent ADR (PINK: TCEHY). It is the world’s largest online community with over 635 million users.
The Baidu post bar, operated by Baidu ADR (Nasdaq: BIDU), China’s largest search engine. It has over 60 million registered users and recorded a recent high of 1 billion visits per day.
The Sina microblog, which Sina ADR (Nasdaq: SINA) – China’s largest online news portal – runs. It has more than 100 million registered users.
Of course, they all still have to live with government censorship.
Sina dealt with that harsh truth after some of its anonymous users began calling for pro-democracy rallies on February 19. Its function that allows users to re-post others’ comments was then temporarily disabled, and users couldn’t always conduct searches either. Those who tried to post content on the hot topic even found their accounts temporarily locked.
Chinese Social Networking Services Face Unique Risks
Those actions shine a spotlight on the risks Chinese social networking services face. Though Sina appears undeterred, as it pushes ahead with heavy investments into its microblog this year.
This alone indicates that Chinese social networks are gaining ground.
Sina plans to at least double the microblog’s staff. It will also drive up marketing expenditures, which will negatively impact its overall profitability over the near term.
Buts its recent performance has encouraged it to move forward. Sina’s microblog users doubled to 100 million over the past four months.
Though that is just half what Twitter boasts globally, it makes Sina by far the largest microblog in China. And at this rate of growth, Twitter could fall to second before long.
Sina says it wouldn’t try to make money from the service until it has expanded its competitive lead. But it could begin experimenting with monetization in the second half of the year.
A Cautious Future for Microblogs in China?
Sina may or may not make money from its microblog. But the real question is how much control the government plans on asserting over it and its competition.
Despite China’s strict censorship, Beijing seems to be carefully weighing its controlling habits with its desire for economic growth. Last year, a white paper outlining the government’s stance on the internet focused mainly on economic opportunities created by the web.
So overall, any fallout is likely to be limited and gradual. And microblogs services shouldn’t worry too much about being shut down.
However, investors’ should proceed with caution all the same. They still face very real regulatory risks that can easily bite into any future profits they make down the road.
Good investing,
Tony D’Altorio
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