BUSINESS

REPRESSION TO RICHES

Here’s how to make a buck in China without bucking the authorities

ANDREA MANDEL-CAMPBELL June 11 2007
BUSINESS

REPRESSION TO RICHES

Here’s how to make a buck in China without bucking the authorities

ANDREA MANDEL-CAMPBELL June 11 2007

REPRESSION TO RICHES

BUSINESS

Here’s how to make a buck in China without bucking the authorities

ANDREA MANDEL-CAMPBELL

It’s a typical cybercafé scene: rows of video gamers hunched in front of glowing computer screens, their fixated faces bathed in a faint blue glow. And yet Big Café, the ultra-modern Internet hot spot on Shanghai’s bustling west side, is like nothing you’ve ever seen in Canada. For starters, it’s big—like Chinese big. Its sprawling 13,000-sq.-foot space, located on the third floor of an upscale shopping centre, can seat 300 surfers at one go. It’s more like a supercharged amusement complex for adults: you have to be 18 years old and buy a membership card that not only allows you to log on, but keeps track of what games you play, what you buy and where you wander on the Web.

Big Café’s distinctive model is arguably what has allowed its founders—Ivan Gao and David Ho—two Chinese Canadian entrepreneurs, to succeed where Internet giants like Google and Yahoo! have hit the proverbial Chinese wall. In sharp contrast to other foreign pretenders, Big Café is spreading like wildfire, with plans to expand from 1,000 outlets currently under its brand

to 2,000 by year-end. (They own some 10,000 Internet cafés in China, the bulk from recent acquisitions, operating under other names.) The franchise has just sewn up US$12 million in financing from international investors, and has signed a joint venture with Britain’s Coherent Media, whose high-net-worth investors include former executives with Universal Studios and Sweden’s Kamprad family, who control IKEA.

But that’s not all that sets Big Café apart. Unlike Google, which claims to have reluctantly co-operated with China’s government censors only to regret it later, Big Café’s Canadian owners make no apologies for working hand-in-glove with a state appar-

atus that has been described by Western watchdogs as “the most pervasive, sophisticated and effective” system of Internet surveillance and filtering in the world. “We are the government’s last line of defence,” acknowledges David Ho, Big Café’s hipster chain-smoking vicepresident, of the company’s close collaboration with

bureaucrats and police to block pornographic and politically taboo websites from making their way onto computer screens. “Whatever the government deems unhealthy, we try to make sure [our clients] don’t get it.” If a client is found on a prohibited website— and it’s almost always pornography, Ho says—they are told to get off it, and always comply. “People tend to do what they are told,” he says.

With Big Café franchises doubling as merchandising platforms, selling Coca-Cola and iPods to China’s brand-hungry youth, Ho’s pragmatic approach reflects that taken by many Westerners eager to access the booming market. More than that, it reveals a funda-

A MEMBERSHIP CARD TRACKS WHERE CLIENTS WANDER ON THE WEB

mental disjuncture among China watchers over how the Middle Kingdom is managing its spectacular transformation and how, as a result, Westerners should engage the rising superpower. The Canadian government has itself been swept up in this debate as Prime Minister Stephen Harper, in marked contrast to his Liberal predecessors, has unabashedly denounced Chinese human rights violations, straining ties between the two countries and putting Ottawa on a collision course with Beijing.

For rights activists, China’s treatment of the Internet is particularly contentious. President Hu Jintao has made no secret of his desire to control the notoriously unwieldy Web, recently calling on the government to “purify” the Internet, which he said should be used to “nourish spirits and mould minds.” The ruling Communist party, fearful that the Internet could become a serious challenge to its monopoly on power, has gone so far as

‘I HEARD THE SAME ARGUMENT IN STALINIST RUSSIA,’ ONE CRITIC SAYS

to demand service providers, including Yahoo!, hand over email account data that has led to the imprisonment of “cyber-dissidents.” That has raised hackles among many in the West, but to Ho, who was born in Hong Kong and immigrated to Vancouver as a child, China should be congratulated for how far it’s come since the dark days of the Cultural Revolution. “We have to work within the parameters of what the government allows,” he explains. “Unfortunately, those parameters may not seem logical to people not living in China, but after being here for 10 years, you realize that China is a very large country and social stability is the first priority.

“The Chinese government has done a very good job,” he adds. “It’s difficult to criticize unless you’re actually living in that environment. I don’t see a lot of people complain-

ing. Unless you’ve lived in China, you wouldn’t understand.” It’s a feeling one comes across often in China and has led many Chinese to consider Westerners somewhat hypocritical in their uninformed, broad-brush judgments. As Howard Balloch, Canada’s former ambassador to China, points out: “Personal freedoms have never been greater in the history of China. Period. Full stop. The extension of political rights comes slowly—undoubtedly too slowly—but things are moving in the right direction.”

Ronald Deibert has never been to China, but he sees what happens to cyber-dissidents who try to buck the system. Director of the Citizen Lab, a University of Toronto initiative that promotes worldwide Internet freedom, Deibert helps Chinese bloggers get around the matrix of firewalls, filters and blocked domains. From what he can tell, Chinese Internet censorship is getting worse, not better. “Social stability may be a value the

Chinese rank very highly, but there is so much deceit, such a lack of transparency, and the methods they use against those who step outside the boundaries are extreme,” he says. Ho’s defence is “morally objectionable,” he argues. “I heard the same argument in Stalinist Russia. You can apologize for all sorts of things when you are making money.” Social stability is definitely an issue in China, with some 87,000 protests registered last year alone. But according to Bruce Gilley, an assistant professor specializing in China at Queen’s University, censorship actually foments conflict rather than preventing it. “Instability in large countries is caused by a lack of open media, because problems get bottled up, not by an open media itself,” he says. “If the government truly believed it was acting in the interest of the Chinese people, why would it

need to censor free discussion among them? It’s a big lie.”

Others, however, are less concerned about the ethics ofWestern companies like Big Café. As Deibert points out, Chinese censorship is also much less comprehensive than many realize, relying on filters that are prone to error and easy to get around. With 137 million cyber-citizens and tens of millions more going online each year, Chinese surfers are able to access an unprecedented amount of information, navigating new avenues of critical and creative thinking. And foreign Internet providers are key to making sure things stay that way, says Yuen Pau Woo, president of the Asia Pacific Foundation of Canada. “Local companies would operate in such a ham-fisted, detrimental way compared to a company steeped in Western values,” he argues. “It’s better to be an influence for the good, even if it’s compromised. You have to keep your eye on the bigger picture.”

Google is a case in point. While its much-maligned Chinese language search engine censors politically sensitive references to Taiwan and Tibet, Google’s translation technology allows Chinese surfers to convert otherwise inaccessible English language Web pages to Chinese. “Technology is, by definition, revolutionary and hates being controlled,” says Minxin Pei, director of the China program at the Carnegie Endowment for International Peace in Washington. “I would say let the government try [to control the Internet] and let’s see who wins.”

Big Café definitely seems to be winning. With some 40 million Chinese visiting Internet cafés daily—a number that is growing by 10 per cent every six months—each Big Café franchise enjoys a profit margin of some 40 to 50 per cent. They average about 10,000 active members per franchise, with clients paying both for their card and a per-hour usage fee. But beyond money, Ho believes he’s doing the right thing. Before Big Café came along, cybercafés had something of a licentious image in China. They were usually unlicensed and kids would skip school to play video games in often unsafe facilities. A number of cafés burnt down as a result, killing hundreds of children. “The only difference we can make is improving things, and going against the government won’t improve things,” says Ho, who attributes his ability to appreciate other perspectives and cultures to his Canadian upbringing. “It helped us go with the flow, respect the law and integrate with the Chinese way of doing things.” M

Andrea Mandel-Campbell was awarded a media fellowship by the Asia Pacific Foundation of Canada to travel to China.