New Crackdown Spotlights Social Networking Risk 新的打压凸显社交网络风险

By newsdoug on April 1, 2012

It’s a beautiful spring day here in Shanghai, and if you’re an avid microblogger you’re probably getting up and perusing the latest news and gossip on Sina’s (Nasdaq: SINA) popular Weibo service to read and pass on to your friends the latest news about your favorite celebrity or social issue. But a quick attempt to pass on someone else’s posts with your own insightful comments attached is suddenly impossible — blocked by Weibo itself as punishment from Beijing for spreading rumors, underscoring again the perils big companies face when setting up shop in China’s social networking realm. (English article) The news that Sina’s Weibo and another popular microblogging service from Tencent (HKEx: 700) are both being punished for spreading rumors should come as a surprise to no one, though enthusiastic investors who purchased stock of both companies on big hopes for their microblogging services might decide that Monday is a good time to sell some of their shares. The reports on what happened are actually quite detailed, saying both Sina and Tencent angered Beijing by allowing rumors to spread on their services that troops had moved into the nation’s capital as part of a coup attempt that never happened. Beijing has always been sensitive about any kind of rumor that could foment social unrest, and those sensitivities will only increase this year as the nation prepares for a major handover of power from the current leaders following the end of their official 10-year term in office. What’s interesting in this situation is the very public way in which the matter is being handled, with news of the false rumors and unspecified punishment both appearing in a report from Xinhua, the central news agency considered the voice of the Communist Party itself. No specifics of the punishment have been disclosed, and I suspect both Sina and Tencent will face limits on their microblogging operations and perhaps some small fines over the short term. But the longer term implications could be much more worrisome, with both companies facing big consequences — including even a possible shut-down — if they commit any similar transgressions in the year ahead during the sensitive power handover. That could pose a big risk to both companies, as well as other microblogging services, as all have now officially been warned that Beijing won’t tolerate any political rumors in the months ahead. That means all these services will undoubtedly delete any political postings on their services that are even remotely political for fear of offending Beijing, which could easily anger many of their millions of users who will no longer be able to post many of their thoughts online. Advertisers will also undoubtedly think twice about wanting to play in such a dangerous space, where their ads could not only suddenly become in accessible but they could also risk angering Beijing by doing business with companies accused of spreading rumors. This latest development comes only months after Beijing announced its “real name” policy for all microblogging sites, requiring them to register all their users by their real names, again as a measure to try and curb rumor mongering and other unsavory activities such as scams. (previous post) Sina, Tencent, NetEase (Nasdaq: NTES) and other microblog site operators aren’t the only ones at risk, as other social networking site operators like Renren (NYSE: RENN) and Kaixin, whose services are more similar to Facebook, could just as easily be accused of spreading rumors and also be punished. To anyone considering buying shares of any of these companies, I would just reiterate that they may have good great growth potential due to the size of China’s Internet market — which recently passed 500 million users — but they also come with huge risk. Especially in the coming year with the leadership change, these companies will have to be especially careful about what they allow on their sites, and can risk punishment or closure at any time. At the same time they face the risk of punishment by their own users, who might become frustrated with all the new restrictions and could easily end up abandoning their accounts.

Bottom line: The latest punishment for Sina and Tencent microblogging services for spreading rumors underscores the big risks China Internet companies face due to political considerations.

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