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.
"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.
"I strongly oppose the blocking of GitHub," wrote Lee, "GitHub is the primary tool that programmers learn and keep track of international trends...Censoring it will only result in Chinese programmers being left behind, losing competitive edge and vision."
His remarks were reposted nearly 100,000 times and drew 20,000 comments. In a few days, GitHub was unblocked; however, another open-source website, SourceForge, is still inaccessible in parts of China. And at various times, the Chinese government has blocked similar technical websites including Python, Google Code and Mashable.
However, it would be a mistake to assume that China is at war against the Internet as a whole. In fact, the country has built a decent China-specific Intranet, one which allows users to access sites quickly -- so long as those sites are domestic. Searching on Baidu, China's most popular search engine, is no slower than using Google. And watching videos on Youku, China's top video sharing site, is just as smooth as YouTube. For many, if not most, of China's 560 million Internet users, language barriers and an abundant domestic Internet keeps them from worrying too much about censorship. Climbing the wall is simply too big of a hassle.
Meng Xianglin did not get a taste of the Great Firewall until last year, when he joined a start-up in Beijing that used the business version of Google Apps. Google's services in China have been unstable over the past three years, but around the time of the 18th Communist Party Congress last November, for an entire two weeks, Meng and his company experienced the most severe censorship in memory.
"We couldn't even open an e-mail or document after waiting 20 minutes," said Meng, a marketing manager at Wandou Labs, whose primary product is a popular Android phone management software called Wandoujia. "The entire company was going crazy. Often the whole morning was wasted."
But when Meng worked at a smaller start-up before that relying on local services rather than Google, "even the engineers didn't know how to circumvent the Great Firewall." That company used the e-mail service NetEase, a Chinese website, and when co-workers discussed the latest industry news, they looked at domestic barons such as Baidu and Tencent, instead of Facebook and Google.
Meng believes that many Chinese start-ups only live on the "China Wide Web," and for them, Internet censorship neither hinders their work nor provides protection against foreign competitors because "they're only concerned if Tencent or Qihoo 360 will copy their products." Tencent and Qihoo 360 are both Chinese Internet giants.
The hindering effect of Internet control on homegrown innovation, as Meng sees it, is far-reaching yet less explicit than causing efficiency loss or service instability. When he studied at the prestigious Peking University in Beijing, the school charged (and still charges) students $1.50 a month for unlimited domestic Internet use, but $14.50 for unlimited access to the World Wide Web. Meng sensibly chose the lower rate.
"I didn't need to visit foreign websites," he explained. "Nobody talked about them, and I didn't feel curious about them at all. It wasn't until I came to Wandou Labs that I felt like the world was flat."
Meng's experience wasn't at all unusual, and it reflects something deeper in China's Internet policy. Bishop believes the Great Firewall is simply a symptom, not the cause, of much broader issues that are actually hampering creativity and innovation across the economy.
"If people say 'if only we didn't have the Great Firewall, we would have innovation and creativity', I think that's actually not true," said Bishop. "I think the fact the Great Firewall exists is indicative of a much broader approach to how you educate people and how you manage the economy."
Bishop's point of view resonates with that of a few other sophisticated China observers, including Wang Haiyan, the China-born and U.S.-educated managing partner of the China India Institute, a Maryland-based consultancy.
Wang said that China lacks the right mix of conditions that feed real innovation, including free flow of information from across society, strong intellectual property rights, and an education and culture that encourages people to think creatively and speak up for themselves. Web censorship, she said, is only part of the government's efforts to control information flow.
"Ideas (for innovation) can come from everywhere," she said, "Even social issues like dumping dead pigs into the Huangpu river can stimulate ideas for social innovation. But the government is fearful of ideas that could cause social unrest, so the benefits of free ideas are not coming out yet in China."
The key words for today's innovation are open and collaboration, Wang added, and the Chinese government's worry over "a tiny amount" of a sea of information has essentially isolated the state from rapid idea exchanges around the world.
"You don't want to be on the island, but in the ocean."