Yahoo gets Chinese grilling

For most companies with international ambitions, China represents a tantalising prospect – after all, cracking such a huge market could pay huge dividends. But this week’s very public castigation of Yahoo boss Jerry Yang for his company’s role in the 2004 jailing of Chinese reporter Shi Tao highlights how tough it is for western companies to do business there.

Last Updated: 31 Aug 2010

Yahoo was fiercely attacked in the US Congress this week for supplying confidential information to the Chinese secret police that led to the arrest of human rights activist Shi Tao, who was later given a ten year jail sentence for his subversive pro-democracy activities. Politicians from both sides of the House put the boot in, with Democrat Tom Lantos supplying the most memorable sound-bites: ‘While technologically and financially you are giants, morally you are Pygmies,’ he sneered, suggesting the company was ‘spineless and irresponsible’.

The politicians weren’t just upset about Yahoo giving up details about Shi Tao’s online activities (which was then used by the police to convict him). They also think that Yahoo subsequently lied to Congress about it. In an earlier hearing, general counsel Michael Callahan had denied all knowledge of why the information had been requested – but it later came to light that this was not entirely true. Callahan insists he didn’t know all the facts, but Lantos said this was at best ‘inexcusably negligent’, and at worst ‘deliberately deceptive’.

Yahoo was contrite (to an extent), apologising for the confusion and for the suffering endured by Shi Tao’s family, and expressing the wish that it can avoid such situations in future.

But the fact remains that in this case, it presumably didn’t have much choice. And other western companies who want to operate in the country probably won’t either. If you want to be in China, you have to play by the local rules – and that means co-operating with the state police, whether you like it or not. If you don’t like the heat, stay out of the authoritarian regime, the Chinese might say.

Yahoo has since done exactly that – ceding control of all its Chinese operations to local partner Alibaba, the newly-floated Chinese internet company in which it owns a 40% stake. Likewise Google has had to compromise on its high principles to get its foot in the door. Congress might not like it, but they don’t have to work there.

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