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China Won’t Repeat Protectionist Past in Digital Realm

Google may have unnecessarily provoked a fight with China, but the Middle Kingdom better keep its wits, lest it repeat a sad protectionist history.

Early last millennium China was the world’s richest civilization and technology leader. It famously invented gunpowder, iron casting, paper, porcelain, printing, and gigantic nine-masted sailing vessels. Between 1405 and 1433, the great Muslim Chinese explorer Zheng He led seven expeditions in the South Pacific and Indian Oceans, reaching the coast of East Africa. China’s naval fleet grew to 3,500 ships. But in the year 1500, the Ming emperor inexplicably outlawed boats with more than two masts and in 1525 ordered the destruction of the entire fleet. The Silk Road closed, and the nation turned inward. Four hundred fifty years of stagnation and poverty ensued.

For the past 30 years China has reconnected to the outside world. It embraced technology, trade, and the ultimate global link—the Internet. China did not measure up to Western ideals of free speech, but communications growth was explosive. China has more Internet users (384 million) and more than twice as many mobile phone subscribers (745 million) as the U.S. has people.

Even with China’s tactical restrictions, the Web was irrepressible, working its way deep into Chinese culture and commerce. At first China largely adopted the Western Web. Before Google “entered” the Chinese market in 2006 by locating Chinese-language google.cn servers on Chinese soil, Chinese Web users could access Google’s global google.com service, which earned a 13% market share. The google.cn service brought Mandarin characters and China-specific expertise to its searches. It was an improvement but still only boosted Google’s total China market share to 20%, far behind leader Baidu.

Now, as China builds its own thriving Internet ecosystem and tangles with Google, other big changes are looming. New internationalized country-code domains will soon come online. This means instead of only Latin characters used in the traditional domains (.com, .org, .fr, .jp, .cn), the Internet will also use native language characters to define a new set of domains. So China gets the brand new .?? (.china), which it can define and manage. Last week China took its second step toward this milestone when ICANN announced the successful “String Evaluation” of both the simplified and traditional Chinese character versions of .cn.

One of the Net’s great advantages is that it obliterates distance, softens national boundaries, and lowers artificial barriers. The virtual world is more efficient and transparent than the physical world. Digital technologies are “technologies of freedom.” But what if nations view the new native-language domains as sovereign territory to be protected? Are the new domain spaces additions and complements to the existing Net? Or are are they a replacement? Is .?? a much-needed tool to bring ever more millions of Chinese onto the universal and open Internet? Or is it a wall to close the Googles out and its own people in?

China is nowhere near closing for business as it did five centuries ago. One doubts, however, that the Ming emperor knew he was dooming his people for the next couple hundred years, depriving them of the goods and ideas of the coming Industrial Revolution. China’s present day leaders know this history. They know technology. They know turning away from global trade and communication would doom them far more surely than would an open Internet.

I’ve often warned Western politicians against our own self-defeating protectionist measures aimed at China. And we can sympathize with China’s perhaps overly cautious approach to managing two simultaneous, epochal transformations—globalization and the Internet. These dramatic changes strain all of us but are especially traumatic for a nation that was stuck in the Middle Ages just a few decades ago. In the Google matter, I hope and suspect each side made its point and will now more forward. But that doesn’t mean we shouldn’t remind China of the destructive possibilities when any one party in this global system even toys with protectionism. Digital autarky would be like sinking your own fleet.

By Bret Swanson, President of Entropy Economics

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Not protectionism... Tom Vest  –  Apr 14, 2010 2:47 AM

The act of rendering a nontrivial share of non-domestic IP traffic exchange destinations unreachable by all domestic Internet users, except perhaps through illegal methods (i.e., “packet smuggling”) has the general effect of reducing the absolute volume of inbound IP traffic, and by implication the overall ratio—or “balance of trade”—of inbound to outbound traffic flows (note: esp. when the foreign content sources to be blocked are chosen in part precisely because they are “in demand”). Inasmuch as both the absolute volume and the inbound/outbound ratio of traffic exchanged between independently managed IP networks can have major implications for network resource utilization—and more important still, for the direction and level of inter-provider (which in this specific case is synonymous with inter-national)  financial settlements, the unique structure of China’s quite explicitly national network economy, all the way down to the most basic architectural level, renders all arguments about the significance of particular network-centric FDI transactions largely moot. Regardless of whether they succeed and take root or are subsequently yanked to be replanted in a more congenial climate, individual market entry attempts by foreign Internet content and web-based service providers—even high profile ones like Google—will continue to be little more than trees obscuring the much older, and vastly more important (and seemingly impenetrable—few go in, but no one ever comes out intact) forest beyond.

“Protectionism” is just one of several tools that may be employed to the broader end of enhancing state wealth—and hardly the most effective one at that. Regardless, the tactics are less troubling in general than the overall strategic orientation—which has been known (and often associated with other kinds disruptive interstate behavior) for more than two centuries, as “mercantilism.”

China's domain name policy is all about protectionism Thomas Barrett  –  Apr 14, 2010 7:44 PM

China’s recent changes this year regarding who can acquire .cn domain names is all about protectionsim.

Previously, any company or individual could obtain a .cn domain name.  Over 13 million domain names were registered as a result, making .cn the second largest domain namespace after .com.

For any company interested in selling to markets in China, a .cn domain name is a smart first step.  You can market and verify the exisatence of a market before large-scale investments required for a physical presence.

But in january, all that changed.  China now requires companies interested in acquiring a .cn domain name to have a business license from China and a chinese citizen to submit the application.  This has nothing to do with censorship or privacy.  it is simply a way to prevent non-Chinese companies from gaining a foothold in China.  For now, existing registrants are not effected:  time will tell if this will change.

This also means that trademark owners cannot prevent cybersquatting in the .cn domain name.  I talk more about this here: http://www.encirca.com/domain-news/2010/encirca-urges-cnnic-to-allow-trademark-protection-in-china/

In short:  it is an attempt to keep out foreign companies until local companies appear to serve the local market.

I would call this protectionism.

Tom Barrett
EnCirca, Inc

Most of those domain names were fast flux botnet domains used for spam and such Suresh Ramasubramanian  –  Apr 15, 2010 5:55 PM

... not to mention the usual high volumes of domaining activity in a ccTLD where domains are extremely low cost, to put it mildly. There is protectionism, and there is a lot of "tilting the playing field" (if you want to look up multiple such examples, a quick read through old copies of businessweek will set you up - especially those by Bruce Einhorn, their HK based correspondent) But what they did to .cn domains is well.. it could be a lot of things other than protectionism if all that it shuts out of .cn are domainers and botmasters.

Historical perspective / big picture Tom Vest  –  Apr 15, 2010 4:17 AM

If one starts from the premise that any restriction or impediment that affects commercial activities within any jurisdiction and has asymmetrical impacts on foreign vs. on commercial entities is, ipso facto, protectionism, then of course you are correct. Likewise, if direct involvement or indirect influence of governments on border-traversing commercial affairs is sufficient to declare protectionism, then CNNIC’s status would seem to imply that nothing much has actually changed; a “protected” market which just happened to be marginally less protected for the last few years has simply reverted to its original state.

The problem of course is that such expansive views could probably be used with equal validity to implicate almost any broad market or regulatory change that comes into effect for any/every product or service market in any economy in the world—not very useful if the point of raising the charge is to alert people to an irregularity that merits special attention. In fact, if I remember correctly, in this particular case the relaxation of licensing, commercial presence et al. restrictions that have just been reversed only came into effect in Q1 2003.

Actually, that would date the timing of the original opening back (roughly) to the same broad but brief pro-competitive turn in China’s overall commercial-regulatory strategy for the communications and information industries that produced a wide variety of tragic tales, from the rise (and first/hardest fall) of CNC as a plausible competing long-haul network facilities operator, to the emergence and subsequent disappearance of China’s (small) universe of “neutral” Internet data centers, to the the inauguration of APIX and the establishment of a short-lived domestic Internet access joint-venture between AOLTW and Legend (now Lenovo), etc. etc….

Most/all of these and other artifacts of that brief period had already entered the history books by about 2006 or thereabouts—so in a way the DNS industry has been unusually fortunate to have enjoyed such an extended reprieve…

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