Consul General's Speech to U.S.-China Internet Industry Forum

November 7, 2008

Vice Minister Cai Mingzhao, Chairwoman Hu Qiheng, Chief Research and Strategy Officer Craig Mundie, distinguished guests from the Shanghai Municipal Government, 各位领导，各位来宾，女士 们， 先生们，早上好!

On behalf of the U.S. Consulate General in Shanghai, I am delighted to participate in the second annual US-China Internet Industry Forum.  I would like to take this opportunity to thank the Internet Society of China and Microsoft for sponsoring this important dialogue in an environment of shared learning and collaboration.

I am happy to see so many government, business, and academic leaders from both China and the United States in this impressive audience.  This is bound to be a stimulating forum, with so many leaders gathered to engage on the tremendous opportunities and pressing challenges brought about by the Internet.   And, what better place than Shanghai…a world center of talent and innovation! 

All of us have experienced the power of technology in our own lives.  A few years back, my husband and I got into a discussion with our teenage sons about the most important invention in modern history.  We ended up arguing the merits of electric lights versus the Internet, but the truth is that none of us would be willing to give up either one.   The Internet is now central to how we live, how we communicate, how we work, and how we conduct business.  It’s tremendously exciting to be here with a group of people who are in a position to influence how that technology can be used in the future.

Like every new technology, the Internet has brought with it both opportunities and challenges.  As a U.S. Government representative, I want to highlight some of these in the context of our broader US-China relationship.  Today I would like to make two key points important to the U.S. Government about the Internet - the need for a free flow of information and the protection of intellectual property rights online.

As we approach the 30th Anniversary of the establishment of diplomatic relations between the United States and the People’s Republic of China, the ties binding our two nations are deeper and more complex than ever before.   I was here 25 years ago and can attest personally to the remarkable changes since that time -- today there is no world issue on which our countries are not jointly engaged.   One link that has drawn the people of our two countries closer together is the Internet, a tool that promotes open and free communication and serves as the foundation for strong and innovative societies. 

China has made tremendous strides on rule of law and transparency issues by taking advantage of Internet technologies, such as publishing draft laws and regulations on the Internet for public comment.  For example, the Shanghai Municipal People’s Congress this year began a systematic approach to posting all major draft regulations and laws on the Internet for public comment.  From our own experience in the United States, this approach ultimately results in better rules, regulations and governance. 

In addition, some courts, such as the Shanghai and Jiangsu High Courts, have also begun publishing court rulings on certain types of cases, such as IPR, and using live web-casting of certain court trials, providing the general public with a front row view of China’s judicial process.  These efforts promote not only better understanding of the law but also better compliance.  

Chinese leaders have also taken advantage of the Internet to conduct public outreach and provide more efficient services to the public.  In June, the Shanghai High Court President participated in a live Internet interview open to the general public.  And last week when I visited Shanghai Customs I learned that they have developed an innovative e-clearance system to speed the customs process for exports.

These steps show that Chinese leaders recognize the value of the Internet in promoting respect for rule of law and transparency, which invariably helps prevent corruption and other abuses.  Rule of law and transparency are part of the bedrock for a successful market economy.

However, we believe that China is missing an important opportunity to deepen and broaden these reforms and unleash the full potential of its citizens’ creativity and energy via the Internet. 

Currently more than 253 million Chinese citizens regularly surf the Internet, a number that could easily double or triple over the next few years.  Over 107 million Chinese have blog spaces.  These are all very recent developments in the space of just a few years and signal the breathtaking pace of change in Chinese society. 

Not surprisingly, the Chinese Government is concerned about the hazards posed by rapid changes in society.  It is unfortunate, however, that the Chinese Government has reacted by trying to control the free flow of communication and information on the Internet. 

Yet, despite controls, the Internet has emerged as an important tool for change within China.  A 2006 poll conducted in Beijing by the Chinese Academy of Social Sciences, indicates that most Chinese respondents believe the Internet provides opportunities to register dissent.  A majority also believe that Internet reports have been beneficial in improving official responses to various crises, including SARS, Avian flu, HIV/AIDS, and water contamination.

Vice Minister Cai has already mentioned the response to the devastating earthquake that shook Sichuan this past May, which left an estimated 80,000 dead or missing.  In the aftermath of the earthquake, the Internet became an important means for coordinating quake relief, including Web postings for soliciting donations and coordinating volunteer groups.  Such efforts, facilitated via the Internet by ordinary citizens, augmented Chinese Government efforts to save lives and rebuild Sichuan.

When we see how useful the internet has been in situations such as the earthquake relief, we have to consider that efforts to control the Internet and the free flow of information are a step back in the development of Chinese civil society.

The United States is deeply engaged with China on this issue not only because we believe that  freedom of expression is a fundamental human right, but also because we know that the free flow of information and ideas is fundamental to a stable and economically vibrant world and a stable and economically vibrant China. 

U.S. Government officials regularly raise the issue of Internet freedom during meetings with Chinese Government officials, as well as through multilateral organizations, and in meetings with the private sector.  The State Department also promotes pro-competitive regulatory and policy environments around the world that will expand access to the Internet.  As Sec. Rice said during a recent visit to a major U.S. Internet company, "the Internet is possibly one of the greatest tools for democratization and individual freedom that we've ever seen." 

The second point I want to make on behalf of the U.S. Government is the need to protect intellectual property rights on the Internet, a subject that Vice Minister Cao also touched on.

The past 30 years of market economic reforms and opening up to the outside world have brought China unprecedented increases in living standards.  A generation ago, telephones were a luxury.  Many villages had just one public phone to serve thousands of villagers.  Now, more than 400 million Chinese have cell phones and send about 25 billion text messages per month.  Although this amazing number is still topped by the United States, where half as many cell phone users manage to send three times as many text messages per month, I have faith that  Chinese teenagers will soon catch up  with their American peers!

The U.S.-China economic relationship has grown with China’s integration into the world economy.  Our two-way trade reached over $251 billion during the first three quarters of 2008.  We are important trading partners in agricultural items, industrial products, manufactured goods and services. 

The Internet plays a vital role in this explosion of commercial activity – from finding customers and suppliers, to conducting financial transactions.  E-commerce has a strong and growing foothold in both our economies.  According to the China Internet Research Centre, over 55 million of China's Internet users shopped online in 2007.  Some industry experts predict that China will become the largest e-commerce market in Asia by 2010.

A prime example of such commercial facilitation via the Internet is a company located not far from Shanghai.  In 1999, Jack Ma and his team of 18 founders created Alibaba.com in an apartment in Hangzhou.  Since that time, Alibaba has become the world’s largest business-to-business market place, with 5 1/2 million registered users from more than 200 countries and territories.  Jack, from whom you will hear later in the program, and his company are excellent examples of one of the key roles the Internet plays in global commerce. 

The Internet has also created tremendous business opportunities in distance learning for U.S. education service providers.  Distance learning in China has grown into a $1.45 billion market and is still gaining momentum.  In 2000, Operation “All Schools Connected” was launched with the goal of equipping over half a million K-12 schools in China with Distance Learning systems by 2010.  The Education Ministry also encouraged 68 top universities to offer distance learning degrees to produce more talent for the country’s burgeoning economy.

Moving from distance education to the on-campus variety, I’d like you to consider for a moment that roughly one third of all foreign students in the United States major in computer sciences.  Based on the approximately 70,000 Chinese students in the US, we can extrapolate that there are some 23,000 majoring in computer science.   Imagine, as these students return to China, how key they will be to building the capacity of China’s IT industry. 

Unfortunately, just as the Internet has facilitated tremendous commercial opportunities and the free flow of ideas and information, it has also provided a distribution channel for counterfeit goods and infringed copyright material that infect entire markets.

The protection of intellectual property is a prerequisite for an innovative economy.   Intellectual property can take many forms— from movies and music to scientific research and engineering designs.   Those economies that fail to adequately protect IPR quickly fall behind in these important fields. 
 
Here in China, intellectual property infringement on the Internet not only hurts foreign rights holders but also threatens Chinese creative industries.  According to a survey by the Business Software Alliance, Chinese companies lost $5.4 billion to software piracy in 2006.  Another Chinese media report estimated the Chinese movie industry lost $2.5 billion in 2005 because of piracy.  And a 2008 report by the International Federation of the Phonographic Industry said 99 percent of the Chinese music recording industry's market is lost to piracy.  While not all this piracy occurs on the Internet, illegal downloads make copyright infringement exponentially easier and virulent.
 
The sale of counterfeit goods over the Internet has even more serious consequences.  A pirated movie won’t kill anyone, but counterfeit drugs can and do.  The US-based Center for Medicines in the Public Interest predicts that counterfeit drug sales will reach $75 billion globally by 2010, and Internet-based sales of pharmaceuticals are a “major source” of counterfeit medicines according to the World Health Organization.  This is worldwide and this is very scary. 
 
The globalized nature of the Internet requires a globalized response.  It requires close cooperation between law enforcement and administrative agencies of all nations.  A coordinated response to Internet IP-related crimes is in the best interests of all countries, whether for encouraging artistic production, scientific discovery or for the protection of the public’s health and well-being. 
 
China has recognized the need to adopt regulations and strategies to protect Intellectual Property on the Internet, particularly copyright.  For example, China implemented a special regulation in 2005 entitled the Administrative Protection of Copyright on the Internet.  China’s National IP Strategy, which was published in June of this year, includes the need to “take efficient measures to deal with the challenges to copyright protection, brought by new technologies like the Internet.”
 
However, progress in developing innovative technology and maintaining confidence in e-commerce will be stunted if the rules protecting Intellectual Property rights on the Internet are not adequately enforced.  We encourage China to take a more aggressive approach to tracking and prosecuting such cases, including deploying more focused resources for this urgent task and implementing deterrent civil, criminal and administrative remedies.
 
The U.S. Government also recognizes the value of IPR protection on the Internet to the health of China’s economy and to the interests of US businesses and stands ready for further cooperation and dialogue. 
 
As this audience knows far better than I do, Internet development is still in its infancy.  Even though I can recall through my own experience some past milestones, such as 28 years ago when I worked for a first-of-its-kind on-line news service, I’m not visionary enough to imagine an equivalent distance into the future.  I will leave that to you experts and simply cite a Chinese saying, 日新月异(rì xīn yuè yì), which basically means continuously changing for the better.   And, just like the electric light made life better for previous generations, the Internet has done the same for us.  Let’s work together to keep it getting better.    
 
Last year during the first US-China Internet Industry Forum in Seattle, Chinese and US representatives from government, the technology industry, NGOs and academia candidly engaged on Internet-related issues between the two countries.  I hope this year you will continue this frank discussion around the opportunities and challenges created by the Internet.    I wish all of you every success in this conference.

Thank you.