In the summer of 2012, Steve Fan suspended his graduate studies at Stanford University and headed back to China, which he had left four years earlier. The motivation of this computer science major -- to launch a start-up and cash in on an idea he spotted in the world's largest Internet market -- was not uncommon. Less expected were the extra costs he incurred for doing business in China.
These had nothing to do with common costs like equipment, rent, or hiring workers. Rather, daily life involved finding workarounds past China's immense national Internet censorship apparatus, widely known as the Great Firewall.
"Google is often blocked for obscure reasons," said Fan, 25, now a software engineer at the Shanghai-based Morpheus Lab. "For example, if a word in my query is sensitive, like 'river,' and if I attempt to search the same term several times, the entire IP address will be blacked out for a minute and a half." "River" in Chinese is pronounced the same as the last name of China's former president, Jiang Zemin, and therefore is censored.
Fan then began to use a virtual private network (VPN) to circumvent censorship. Technically, a VPN provides an encrypted channel to connect to an Internet server in another country, allowing the user to browse the Internet normally. But VPNs are slow, making the loading time for every site (censored or not) longer, in effect imposing an additional cost. In Fan's case, he calculated it amounted to a 10 percent loss in efficiency. Even after adopting GoAgent, a free proxy server provided by Google, Fan still operated less efficiently than he otherwise would.
It is hard to estimate how many entrepreneurs in China, like Fan, need to access information and websites blocked by the Great Firewall. According to Chuangtouquan, a social network that connects Chinese entrepreneurs to venture capitalists, China has about 10,000 start-ups today, covering all kinds of industries from mobile Internet to flower delivery to video games. And even if only a small portion of companies suffer from censorship-related inefficiency, over the years the overall effect would add up.
In the eyes of Michael Li, founder and CEO of Chuangtouquan, this inefficiency costs China dearly, especially in the area of indigenous innovation. China's lack of innovation derives partially from entrepreneurs not knowing enough about the latest trends, something attributable to the closed nature of the country's Internet. Slow traffic -- even with tools to hop over the Great Firewall -- also hinders creativity. For example, if people are unable to watch videos without frequent buffering on YouTube, they may get frustrated in the process of seeking inspiration.
"I didn't need to visit foreign websites. Nobody talked about them, and I didn't feel curious about them at all."
"In this Internet era, we invested so much money and effort to build an Intranet. This is very distressing," Li said.
The Chinese government has invested heavily to build the Great Firewall, part of what the Ministry of Public Security called the "Golden Shield Project" that kicked off in May 2001. The project is a complex system that monitors all levels of information flow within the state and across China's borders. Its total cost remains a state secret, but the state-run China Central Television (CCTV) was quoted by one of the participating developers, Guangdong Hong'an Group, as saying that the investment had already reached 6.4 billion RMB, or $770 million, in 2002.
Others, however, argue that China's investment in web censorship projects isn't such a bad thing. Kaifu Lee, founder of the Innovation Works, a Beijing-based innovation incubator, says censorship can provide a mechanism for protecting local technology firms, even though it was not designed for this purpose. Censorship can fend off competition from some powerful international players, he said, and give local firms some breathing room.
"For entrepreneurs, the most pressing concern is to survive," said Lee, who was head of Google's operations in China before the company relocated its servers to Hong Kong in early 2010. "So if I were an entrepreneur, even though I would suffer some loss, I would still feel mostly grateful for government censorship because it keeps international giants from entering the market."
Lee's view is shared by Bill Bishop, the editor of Sinocism who has lived in Beijing since 2005. Bishop said certain services in China might not even exist or would have much less market share if not for the Great Firewall. He cited Renren, a Facebook knockoff, as an example.
"People will whine about the costs (of censorship)," said Bishop, "But they will probably be very reticent to talk about the benefits that have accrued to Chinese companies."
However, in the long run, the equation may change. Lee says not being able to access the latest information and exchange ideas globally, thanks to censorship, will ultimately represent a "huge loss" to homegrown entrepreneurs. Last January, when the Chinese government temporarily blocked GitHub, an open-source website where programmers around the world create and discuss projects, Lee slammed the government's action on Weibo, where he has 36 million followers.