6th Plenum Report Suggests China Will Strengthen Internet Management

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  • on October 26th, 2011

The official report (中共中央关于深化文化体制改革推动社会主义文化大发展大繁荣若干重大问题的决定) from the 6th Plenum of the 17th Communist Party Congress is now public. The “Central Committee Decision Concerning the Major Issue of Deepening Cultural System Reforms, Promoting the Great Development and Prosperity of Socialist Culture” is a long, complicated and important document. Currently it is only available in Chinese.

Readers of this blog will be most interested in the section on the Internet, summarized here in the Bloomberg story China Communists Vow to Strengthen Management of Internet. I spoke with the reporter and am quoted in the article:

China’s ruling Communist Party said it will strengthen management of online social media sites that have increasingly questioned government actions and exposed official graft.

Vowing to promote the development of what it called a healthy Internet culture, the Central Committee said it will supervise the world’s biggest online community more closely, promote “constructive” websites and punish the spread of “harmful information,” according to a communique from its Oct. 15-18 meeting released overnight by the official Xinhua News Agency.

China’s leaders are grappling with the best way to manage Twitter-like social-media sites such as Sina ($SINA) Corp.’s Weibo service that are hard for government censors to control. Those efforts are part of a wider push by the party to reassert its influence over Chinese culture and society, including in television and the arts.

“People would be making a mistake to be rolling their eyes and dismissing this as empty talk,” Bill Bishop, a Beijing- based independent Internet analyst, said in a phone interview. “Clearly the regulatory risk for Chinese Internet stocks is increasing and has been increasing for the last couple of months.”

Codifying language on Internet control in an official party document is significant because it means tens of millions of party members across the country will focus on the issue, Bishop said…

The communique said the party will “strengthen guidance and management over social networks and instant messaging tools, regulate online information distribution, and cultivate a civilized, rational Internet environment.”

The danger for companies is that increased government oversight of content at sites such as Sina’s Weibo or Tencent Holdings Ltd.’s QQ instant-messaging service may lead to fewer outspoken people using the platforms over time, “basically deadening the community,” Bishop said…

Documents from plenums are second only in importance to resolutions passed every five years by the Communist Party Congress, set to meet next year to pick a new generation of leaders, said Willy Wo-Lap Lam, an adjunct professor of Chinese history at the Chinese University of Hong Kong.

This resolution, which focuses on culture, gives the Communist Party a written record that can be used to justify its actions, Lam said in an e-mail.

“The CCP wants to be seen as a party that properly follows precedents, procedure and traditions,” Lam said. “So every time they detain a dissident or whack a website, they can quote from this Culture Resolution.”

For those who read Chinese, this appears to be the key language in the document about the Internet:

发展健康向上的网络文化。加强网上思想文化阵地建设,是社会主义文化建设的迫切任务。要认真贯彻积极利用、科学发展、依法管理、确保安全的方针,加强和改进网络文化建设和管理,加强网上舆论引导,唱响网上思想文化主旋律。实施网络内容建设工程,推动优秀传统文化瑰宝和当代文化精品网络传播,制作适合互联网和手机等新兴媒体传播的精品佳作,鼓励网民创作格调健康的网络文化作品。支持重点新闻网站加快发展,打造一批在国内外有较强影响力的综合性网站和特色网站,发挥主要商业网站建设性作用,培育一批网络内容生产和服务骨干企业。发展网络新技术新业态,占领网络信息传播制高点。广泛开展文明网站创建,推动文明办网、文明上网,督促网络运营服务企业履行法律义务和社会责任,不为有害信息提供传播渠道。加强网络法制建设,加快形成法律规范、行政监管、行业自律、技术保障、公众监督、社会教育相结合的互联网管理体系。加强对社交网络和即时通信工具等的引导和管理,规范网上信息传播秩序,培育文明理性的网络环境。依法惩处传播有害信息行为,深入推进整治网络淫秽色情和低俗信息专项行动,严厉打击网络违法犯罪。加大网上个人信息保护力度,建立网络安全评估机制,维护公共利益和国家信息安全。

The 6th Plenum document does not contain any new concrete policies but it does set the stage for future moves to rein in parts of the Internet at the possible expense of the commercial Internet companies.

Regular Digicha readers have known for a couple of months that more Internet oversight was coming. At the risk of being lazy I am reposting a portion of my September 6th post Could Regulatory Winter Be Coming For China Internet Investors? It is still relevant to today’s discussion:

Coincidences are rare in China, especially when they involve state media. In the space of a few weeks we have heard from various official or semi-official media about the dangers of online rumors, the risks from excessive foreign ownership of China’s Internet companies, new rules that could potentially invalidate the corporate structure of most Chinese Internet companies, rumors of a real name registration policy for microblog and other social media users, and the launch by Sina of new rumor busting features. Tightening is coming, the question is how far it will go…

Clearly investors should be factoring in more regulatory risk, though it is unlikely that we will see major services like Sina or Tencent Weibo shut. But do not be surprised to see new microblog restrictions that reduce some of its vitality and increase Weibo content management (aka censorship) costs for Sina and Tencent. However, I would be shocked if Weibos were neutered to such an extent that they are no longer viable products. As Keso argued months ago in Three Reasons The Government Is Unlikely To Shutdown Sina Weibo:

1. People need an outlet for their views and emotions, and a visible one is safer than an invisible one;
2. Sina Weibo is controlled by people the government trusts, and the risks from shutting Weibo are greater than the risks from not shutting it;
3. The government can use Weibo to its advantage. (See China Media Project-China’s Leaders Embrace Social Media.)

A bigger risk to Sina investors may not be a Weibo shutdown but a Weibo restructuring, along the lines of Alipay’s “conversion” to a 100% locally owned firm. Microblogs are at least as important to national security as are online payments, so it is not inconceivable that the government could “encourage” a Weibo spinout into a foreign shareholder-free firm. It is also possible that Sina management might not be too unhappy with such a scenario, as they have almost sold off their entire Sina stakes and appear to have already allocated shares for themselves in a Weibo subsidiary. Remember, I am speculating here about possible scenarios, not actually saying this will happen…

I hope these regulatory rumblings are just a temporary chill. But hope is not an investment strategy, and given the current political climate, including the buildup to the 2012 leadership change, investors would be justified in wondering if something bigger is going on.

Here are some links to more background on this subject, all from Digicha except for the last one from Sinocism, my general China blog:

Can Sina Weibo Make Money On Science, Culture And Morality?

Top Chinese Propaganda Official Puts Pressure on Microblogs

Chinese Police Embrace Microblogs, Tencent and Sina Investors Should Cheer?

Happy Days Ahead For Sina And Tencent Weibos?

You can follow me @Bill on Stocktwits@Niubi on Twitter and @Billbishop on Sina Weibo.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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