:00:08. > :00:15.Welcome to a special edition of HARDtalk from Beijing. When you
:00:16. > :00:21.think of the Chinese economy, you probably conjure up images of
:00:22. > :00:26.assembly plants and production lines. Those stereotypes need
:00:27. > :00:31.updating, because this is Beijing's Silicon Valley. The next chapter of
:00:32. > :00:39.China's economic growth story is being written here. The Chinese
:00:40. > :00:44.government is trying to shift the balance of the economy from
:00:45. > :00:53.manufacturing to services. At the heart of that shift is the Internet.
:00:54. > :01:03.650 million Chinese citizens use the Internet. The business potential of
:01:04. > :01:09.the world wide web is vast. The Internet brings with it social,
:01:10. > :01:16.cultural and political change as well. That is where China's rulers
:01:17. > :01:19.begin to get nervous. This is the headquarters of
:01:20. > :01:25.Sohu.com, a provider of Internet services from gaming to video
:01:26. > :01:30.streaming. My guest today is the entrepreneur Charles Zhang, the boss
:01:31. > :01:32.of Sohu.com. Is there such a thing as the Internet with Chinese
:01:33. > :01:57.characteristics? To what extent is the Internet
:01:58. > :02:06.changing today's Chinese economy? To a large extent. The Internet is
:02:07. > :02:20.gradually taking over the economy. Taking over? I would say that. How
:02:21. > :02:26.can you justify that? Say for e-commerce, it is already replacing
:02:27. > :02:35.the department store. For media, Sohu.com and its portals have made
:02:36. > :02:41.the newspaper obsolete. We are gradually replacing the television.
:02:42. > :02:48.People do not watch television, they just watch videos. And for chat
:02:49. > :02:57.programmes replacing operators, responsible for everybody's
:02:58. > :03:06.communication. You see all of these areas where the Internet is taking
:03:07. > :03:13.over. I want to go into some of those areas in more detail. It seems
:03:14. > :03:18.that is an interesting general point. So many sectors of the
:03:19. > :03:21.Chinese economy have been dominated by the state, the government.
:03:22. > :03:24.Everything from mines to heavy industry to the banking sector and a
:03:25. > :03:30.lot of manufacturing is state owned enterprise. That is not true in the
:03:31. > :03:37.technology sector. The traditional industry is mixed. There are a lot
:03:38. > :03:41.of private firms. Even the private sector, if it wants to survive, it
:03:42. > :03:52.needs to cooperate or deal with the government a lot. Only the Internet
:03:53. > :03:58.is an exception. Is this important to you? Does that make the Internet
:03:59. > :04:02.more flexible, more innovative? Definitely. If you look at the
:04:03. > :04:11.spectrum, for banking sectors it is purely state owned. Then you have
:04:12. > :04:20.operators and telecoms. There is more competition. Then you have real
:04:21. > :04:26.estate. You have all of these, restaurants are probably the most
:04:27. > :04:36.privatised. Most of them are state owned. But the Internet is purely
:04:37. > :04:44.the closest form of a pure market economy. You make it sound very pure
:04:45. > :04:51.as though for the first time in China there is an economic sector
:04:52. > :04:58.which is purely driven by economics. Innovation and excellence. It is not
:04:59. > :05:01.true. Surely it is true that the government, though it wants to
:05:02. > :05:05.encourage the Internet, it also wants to maintain close control of
:05:06. > :05:13.it. There is still a factor of government intervention, even in
:05:14. > :05:17.your sector. First of all, it is such a new technology area that the
:05:18. > :05:25.government do not really understand it. Generally speaking, the rules
:05:26. > :05:37.and what you can do or cannot do are much more relaxed. And also, because
:05:38. > :05:49.the government admit they do not understand this Internet thing. They
:05:50. > :05:51.do not say that now. We are often talking censorship, regulation,
:05:52. > :05:54.talking about a government that insists on maintaining control of
:05:55. > :06:10.information. You have to acknowledge that. You have to understand that
:06:11. > :06:17.the government has the intention to make the Internet successful and
:06:18. > :06:21.improve efficiency. The government is concerned about this new animal,
:06:22. > :06:29.this new technology. It has destabilising effects on society.
:06:30. > :06:40.The so-called control is 5% or even less of the topics. Western media
:06:41. > :06:43.are more concerned, but for people living in China, the Internet, even
:06:44. > :06:52.from the information point of view, people are not concerned. 95% of
:06:53. > :06:55.content and activity, the government are eager to see it develop and
:06:56. > :07:05.prosper rather than control everything. You have to remember
:07:06. > :07:13.that the government wants to have the Internet developed. It is not
:07:14. > :07:17.just about content, it is about basic competition. In this country,
:07:18. > :07:24.if I want to use Google or Facebook or Twitter, it is virtually
:07:25. > :07:33.impossible. Those companies have not been allowed to play in this
:07:34. > :07:37.country's marketplace. The companies that thrive here are all Chinese,
:07:38. > :07:43.growing exponentially. They are not in a truly internationally
:07:44. > :07:46.competitive marketplace. Since the Internet started and you look at
:07:47. > :07:53.Microsoft, you name it, American companies are allowed to compete in
:07:54. > :08:10.China. There is an advantage to being a local company. It does not
:08:11. > :08:13.come from that. When you have this pure market economy with thousands
:08:14. > :08:17.of Internet companies, there is real competition. Everybody has to
:08:18. > :08:24.compete on excellence on innovation on perseverance, resilience. All of
:08:25. > :08:45.these things. There are thousands of companies. It is like street
:08:46. > :08:50.fighters. You have Microsoft, Yahoo! Academically they are very strong.
:08:51. > :08:54.The resume is great. But they are not selected by the market. This
:08:55. > :09:04.person does not have the entrepreneurial drive or incentive
:09:05. > :09:10.or percentage of the company. You have a percentage. It is not
:09:11. > :09:24.selected by the market. There is no incentive large enough. They do not
:09:25. > :09:34.have the authority. If the system wants to have the coding changed.
:09:35. > :09:43.The structure of multinationals have a branch and put someone in China,
:09:44. > :09:51.it does not work. You may have some reasons... The bottom line is this,
:09:52. > :09:57.Google tried to break into the China market. The reason they withdrew to
:09:58. > :10:03.Hong Kong is because they felt they were being compromised by the
:10:04. > :10:08.pressure of government. Essentially, censorship in the China market
:10:09. > :10:11.place. You said yourself at a conference four years ago, you said
:10:12. > :10:16.China's voice is lacking because it has no media organisations that can
:10:17. > :10:20.win international respect. You were implying that you yourself saw a
:10:21. > :10:31.problem with the way in which the Chinese authorities insist upon
:10:32. > :10:38.playing a role in media. Google and Facebook, I understand what is
:10:39. > :10:42.happening. What I am saying is that if I am lecturing to an MBA class, I
:10:43. > :10:48.am telling them the main reason, 80% of the reason, you are picking up on
:10:49. > :10:56.20% of the reason. I am presenting a case study on why a multinational
:10:57. > :11:05.failed in China. Multinationals failed, not because of censorship,
:11:06. > :11:25.but because of the reason I listed. What do you think about the new
:11:26. > :11:28.government being led by Xi Jinping? His apparent desire to crackdown on
:11:29. > :11:34.content the government considers as unhelpful? When he says as he said
:11:35. > :11:38.not so long ago that his goal is to form a strong Internet army to seize
:11:39. > :11:41.the ground of the media, it seems to many people around the world that
:11:42. > :11:44.China has a view of what the technology sector can offer that is
:11:45. > :11:47.all about furthering the government's national agenda. That
:11:48. > :12:01.the growth in China is very much still a part of the command economy.
:12:02. > :12:12.You say that is not true. The technology sector is a pure market
:12:13. > :12:14.economy. In terms of politically sensitive content, what the
:12:15. > :12:23.government believe is in destabilising factors. But when we
:12:24. > :12:26.see the arrest of high-profile bloggers, a whole list of different
:12:27. > :12:28.offences, stirring up trouble, causing vile social influence, these
:12:29. > :12:32.can all lead to detention and imprisonment for bloggers and others
:12:33. > :12:42.using the Internet. Do you worry about that? As the person at the
:12:43. > :12:45.head of a successful Internet company, what is it doing to the
:12:46. > :12:48.reputation of the sector in terms of its international perception? I
:12:49. > :12:51.worry, but when you have a new demonstration of them trying to do
:12:52. > :12:55.things, historically you always have a period of time where in order to
:12:56. > :13:27.carry through hard measures you probably need to shut people up. Let
:13:28. > :13:31.them carry out the plan. But the people being shut up are trying to
:13:32. > :13:35.use the Internet in a creative way. Isn't the whole point is that it
:13:36. > :13:41.should not be censored by tens of thousands of government officials in
:13:42. > :13:50.dark rooms? First of all, it is really a temporary phenomenon. Why
:13:51. > :14:03.do you think that? Because I am in this market. I feel it. Any change,
:14:04. > :14:07.I can feel it. Also, in China, there is a saying that you manage in order
:14:08. > :14:13.to develop. Because the internet is exploding. While it is exploding,
:14:14. > :14:20.there is a management strategy side by side, along with the explosion or
:14:21. > :14:30.hypergrowth. Otherwise, authorities worry that it's out of control. So
:14:31. > :14:34.if you say... If you look at the history, the user base of internet
:14:35. > :14:39.users in China, the growth from when I returned to China, it's only a few
:14:40. > :14:45.thousand. Now you have 600 million people on the internet. Then you
:14:46. > :14:47.have applications of all kinds. Not only media or political issues,
:14:48. > :15:02.reporting on media, replacing traditional media. Even if you get a
:15:03. > :15:06.taxi now you have applications. That improves the efficiency of getting a
:15:07. > :15:10.taxi much more. That's the point. You can do anything! It is making
:15:11. > :15:14.the Chinese economy so much more efficient, which is why the
:15:15. > :15:17.government loves the internet. But the government is also suspicious.
:15:18. > :15:20.One question keeps coming back... Can you have it both ways? The old
:15:21. > :15:33.phrase from the old socialist system, can you have the internet
:15:34. > :15:35.with Chinese characteristics? It has been demonstrated. The internet has
:15:36. > :15:46.achieved thousands of times of growth while still being damaged.
:15:47. > :15:48.--managed. Its growing successfully. Western media still pays attention
:15:49. > :15:57.to the small percentage of politically sensitive issues. Other
:15:58. > :16:01.than that, it is really free territory where you can do a lot of
:16:02. > :16:04.things and if the government says, OK this is good for internet
:16:05. > :16:09.development and it doesn't cause a major problem, the government is OK.
:16:10. > :16:11.For example, when we introduced American TV shows there is a policy
:16:12. > :16:21.grey area... Hang on, this is interesting. Do you
:16:22. > :16:24.have to get the censors or any government department to sign off on
:16:25. > :16:28.the kinds of movies and TV shows from America that you are allowed to
:16:29. > :16:38.bring into China? No. The TV shows and movies... Not movies, yet. The
:16:39. > :16:48.TV shows... Let's talk specific. Shows like House of Cards, Saturday
:16:49. > :16:53.Night Live, the Ellen Show... Breaking Bad, Homeland, you name it.
:16:54. > :17:03.All of the American shows on cable TV or the free network is in China.
:17:04. > :17:10.And people can stream them? It's become a trend. The government says,
:17:11. > :17:17.first of all there are no political issues because these stories are
:17:18. > :17:20.dramas, about American society. There isn't much chance of them
:17:21. > :17:25.falling into the 5% of politically sensitive category.
:17:26. > :17:30.There is. In House of Cards, there is a
:17:31. > :17:34.well-known character who is a corrupt Chinese businessman. You can
:17:35. > :17:40.see how relaxed the Chinese government is about video content.
:17:41. > :17:47.You have never had a conversation about your content? No, they love
:17:48. > :17:51.it. Things are changing all the time. A final word on this issue of
:17:52. > :17:57.censorship and content before we move on. There is a very well-known
:17:58. > :18:03.blogger in China. He has 12 million followers. He upset the authorities,
:18:04. > :18:07.they arrested him on some charges which seemed to go away, but they
:18:08. > :18:10.put him on TV in handcuffs saying to the whole of the Chinese nation, the
:18:11. > :18:20.internet is very dangerous and I support the government's new
:18:21. > :18:23.controls on internet. I just wonder whether you, with your understanding
:18:24. > :18:31.of everything the internet can offer China, believe the government is
:18:32. > :18:35.wrong to take that sort of attitude? As I said, I think it's a temporary
:18:36. > :18:42.brief period of tight control, so that the new administration can
:18:43. > :18:48.carry on with its plans. I wouldn't see it as a long-term phenomenon.
:18:49. > :18:57.You have to be an optimist to believe that. Yes. Something else
:18:58. > :19:00.that's interesting about the tech sector in China, it's so successful
:19:01. > :19:04.and growing so fast, it's generating vast waves of new money. You
:19:05. > :19:07.yourself are said by Forbes magazine to be worth many hundreds of
:19:08. > :19:16.millions of dollars and there are many tech billionaires or almost
:19:17. > :19:20.billionaires in this country. Is that healthy, do you think? After
:19:21. > :19:24.all, we are still in communist China and there are many rich Chinese but
:19:25. > :19:32.the tech sector is making people unimaginably rich, so quickly. Do
:19:33. > :19:37.you worry about that? I don't worry. It's good. Not only making all these
:19:38. > :19:43.entrepreneurs rich but creating a lot of jobs. Improving the
:19:44. > :19:49.industry's efficiency and competitiveness in the economy. The
:19:50. > :19:54.internet is the best thing. The society is a hybrid, good things and
:19:55. > :20:02.bad things. The internet is the best of the best. I come back to this
:20:03. > :20:06.point about the nature of China. Maybe this is wrong but you were
:20:07. > :20:10.quoted in the Wall Street Journal a few years ago when you were buying a
:20:11. > :20:13.superyacht. They said you waited to buy the yacht until you were
:20:14. > :20:17.convinced you were buying the most luxurious yacht in the country. When
:20:18. > :20:20.you reach that sort of lifestyle and you are public about it, aren't you
:20:21. > :20:24.creating problems for yourself? Well, yeah, I do have yachts and
:20:25. > :20:41.jets. But the new billionaires are buying bigger ones. You have to buy
:20:42. > :20:50.bigger ones? After a while I realised it isn't life's meaning.
:20:51. > :20:54.You put it well. I've been speaking to Ai Weiwei, the artist in China.
:20:55. > :21:01.He is very concerned about the effect of materialism and money on
:21:02. > :21:04.Chinese society. He says he walks and travels around Beijing and sees
:21:05. > :21:07.so many people who feel disconnected from the success and power of the
:21:08. > :21:10.elite and who also have a deadness in their eyes because China has
:21:11. > :21:17.become so much about defining yourself by money. Do you think
:21:18. > :21:20.that's true? It is a problem. I think after the cultural revolution,
:21:21. > :21:25.the traditional Confucianism and Buddhism and Taoism, they are
:21:26. > :21:41.preserved. But after the cultural revolution the culture was lost. The
:21:42. > :21:56.country needs to re-establish its value system. Otherwise, more and
:21:57. > :22:19.more problems. The good thing is again the internet and connecting
:22:20. > :22:21.China with the world. So the younger generations, they are being
:22:22. > :22:25.brainwashed by universal values. Brainwashed in a good way? Yes, in a
:22:26. > :22:28.good way. They watch American movies, listen to American music,
:22:29. > :22:32.there are all kinds of studies and reports, things going on. Many
:22:33. > :22:36.multiple channels of access to information... The younger
:22:37. > :22:49.generation, they understand equality, their own rights, right
:22:50. > :22:52.and wrong. Many ways to be not brainwashed but I would say
:22:53. > :23:00.enlightened. Unlike the older generation. Maybe this internet with
:23:01. > :23:06.Chinese characteristics only has a limited shelf life. Maybe in the
:23:07. > :23:17.long run it will just be the internet? I believe so. It's
:23:18. > :23:20.probably only 5% or even 1% of information that in the short term
:23:21. > :23:26.the government believes has a destabilising effect, then they are
:23:27. > :23:32.concerned. But on a general level, there's vast amount of activity or
:23:33. > :23:45.information. The government is really relaxed. A final question
:23:46. > :23:48.about values. Looking ahead 20-30 years, do you see the internet, the
:23:49. > :24:00.tech sector, what people like you are doing, as a democratising force
:24:01. > :24:03.for China? It has been in the last 20 years and it will be. We have to
:24:04. > :24:05.end there. Charles Zhang, thank you very much
:24:06. > :24:15.for being on HARDtalk.