Censorship and oil demand in China

Submitted By Tim Iacono
Two reports in the Wall Street Journal provide yet another reminder of how China's "market" economy is different than any other market economy in the world. The lead story($) in today's paper provides details on a new requirement for PC makers to install internet filters on all personal computers sold in the country beginning in just a few weeks.

China plans to require that all personal computers sold in the country as of July 1 be shipped with software that blocks access to certain Web sites, a move that could give government censors unprecedented control over how Chinese users access the Internet.

The government, which has told global PC makers of the requirement but has yet to announce it to the public, says the effort is aimed at protecting young people from "harmful" content. The primary target is pornography, says the main developer of the software, a company that has ties to China's security ministry and military.

For all the benefits provided online by companies such as Google and Wikipedia, pornography and gambling remain two of the most profitable internet businesses, an indication that unfettered capitalism does not always produce the intended result.

What else besides pornography gets blocked remains the important question. It sounds innocent enough based on the company that provides the software.

The software was developed by Jinhui Computer System Engineering Co., with input from Beijing Dazheng Human Language Technology Academy Co.

Bryan Zhang, founder of Jinhui, said Green Dam operates similarly to software designed outside China to let parents block access to Web content inappropriate for children. Some computers sold in China already come with parental-control software, but it isn't government-mandated.

Mr. Zhang said his company compiles and maintains the list of blocked sites, which he says is limited to pornography sites. He said the software would allow the blocking of other types of content, as well as the collection of private user data, but that Jinhui would have no reason to do so. He also said the software can be turned off or uninstalled.

His company plans to transmit new banned addresses to users' PCs through an Internet update system similar to that used by operating-system software and antivirus programs.

Since the Chinese government is already known to block many internet sites and determined web surfers have found ways to get to the content they really want - often times related to independence in Tibet, Falun Gong, or other issues that could foment social unrest - it seems unlikely that the new filtering will be limited to pornography (and maybe gambling).

It should be interesting to see how this develops as it is a much more intrusive form of censorship than restricting access to websites at higher layers of the network.

The other report($) from China deals with a much more economically important issue in the world today - energy demand from the world's fastest growing economy and how difficult it is to obtain any reliable information on the subject.

China is estimated to account for 9.3% of the world's oil use, yet it releases no actual consumption data. That has led analysts to turn to Google Earth to track the movements of oil tankers and to travel across China meeting with low-level oil industry officials. To predict agricultural production, firms are studying ways to use satellite, weather and soil data throughout China.

These analysts were early in spotting a rise in demand in China this spring and believe demand will stay strong, justifying the current oil price and possibly pushing it higher.

Sanford C. Bernstein analysts Neil McMahon and Alexander Inkster are using Google Earth, the Web site that provides satellite images of almost any place on the planet, to zoom in on Chinese storage facilities, helping monitor the increase in capacity over time.

In May their focus was on Aoshan, a site in eastern China. Images from 2000, 2003 and 2007 proved what had long been suspected -- that storage capacity had been massively expanded. That helped give Messrs. McMahon and Inkster the confidence to predict a surge in Chinese demand.
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Historically, the focus of oil research was on the U.S. and Europe. Analysts would get a good handle of the overall picture just by looking at these two markets. The game changed in 2004, when Chinese oil demand surged 15.4%.

You can see how this might become a contentious issue if the global economy, at some point, mounts a strong recovery and energy supply/demand fundamentals all of a sudden take center stage again.

Recall that, last year, when oil prices peaked in July, U.S. demand had been flat or falling for many months, yet daily production could not keep pace with daily demand, China being the biggest driver of the growth in demand.

It would be nice to get a better handle on just how much energy China consumes and how much crude oil it has been stockpiling, particularly in light of the fact that it took the government six years to let the rest of the world know that its gold reserves had doubled.

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