TO REACH CHINA, LINKEDIN PLAYS BY LOCAL RULES

Original Story: nytimes.com

HONG KONG — For American technology companies from Microsoft to Facebook to Google, China is a difficult, even impossible, place to operate.

But one company, the social network LinkedIn, has found a way to do business — by being willing to compromise on the free expression that is the backbone of life on the Western Internet.

LinkedIn’s experience provides a blueprint, and perhaps a cautionary lesson, for Silicon Valley as it tries to crack the vast Chinese market. Other American tech companies are watching with great interest, wondering whether LinkedIn will find an equilibrium between free speech and Chinese law that it can live with.

“Over the next five years, things will continue to progress in a positive fashion over there, so it’s important to be there today,” said Kerry Rice, an Internet analyst at Needham, a brokerage firm. “If LinkedIn figures out how to navigate the operating environment in China, clearly other companies will try to imitate that.”

LinkedIn’s global English-language site has attracted four million Chinese members without gaining much attention from the Chinese government. But the company wanted to reach more of China’s estimated 140 million professional workers, and so in February it introduced a Chinese-language version.

The Chinese-language site has attracted about a million new members and seems to have the tacit approval of the government. It is functioning without blockages even though the authorities have cracked down on other Internet services, including Instagram and Yahoo, in reaction to the pro-democracy protests in Hong Kong.

The secret to LinkedIn’s seeming success? Aside from its willingness to play by Chinese rules on expression, the company has relinquished 7 percent of its local operation to two well-connected Chinese venture capital firms. Having such a relationship with homegrown firms is crucial for foreign web companies seeking to operate in China, experts say.

“The government needs to know who they can call, and as a foreign company you need to know before your site gets shut down so you have a chance to do something about it,” said Duncan Clark, founder of BDA China, a consulting firm that advises foreign companies on China’s tech sector. “That’s worth a lot, to have that channel.”

A spokesman for LinkedIn, Hani Durzy, said the company opened a Chinese-language site because of its “belief that the creation of economic opportunity can have a profound impact on the lives of Chinese individuals, much as it has elsewhere in the world.”

“While we strongly support freedom of expression,” he added, “we recognized when we launched that we would need to adhere to the requirements of the Chinese government in order to operate in China. So the decision to proceed in China was one that we weighed heavily.”

On the Chinese- and English-language sites in China, the company censors content that the authorities consider politically sensitive, using a combination of software algorithms and human reviewers. People whose posts are blocked get an emailed form letter advising them that a posted item contains “content prohibited in China” and “will not be seen by LinkedIn members located in China.”

LinkedIn also does not provide Chinese-language users certain important tools — like the ability to create or join groups or to post long essays — that allow people elsewhere to have public discussions and form communities.

Although LinkedIn’s strategy has given it access to Chinese speakers, analysts say it poses risks for the company’s reputation and growth strategy.

Like many American tech companies, LinkedIn, which is based in Mountain View, Calif., has promoted itself as dedicated to free-market principles. Too much censorship could cause users to flee.

What’s more, if LinkedIn’s business grows larger in China, that could give the government more leverage to make demands about what type of content is permissible globally.

The company has already stumbled a bit in its entry into the Chinese market. It angered some non-Chinese customers, who found that posts they made in English while in China were blocked globally as part of the company’s effort to protect its Chinese users from anything that could attract unwanted government scrutiny. LinkedIn moved to loosen its policy last month, allowing posts blocked in China to be seen elsewhere.

Some also say LinkedIn has not communicated clearly how and why it is censoring content.

For example, Bill Bishop, a media commentator and tech investor in China, said content he posted about China from a connection in the United States was blocked by the service. When he inquired why, the company inaccurately responded that it was because he had posted the item from China, when the real problem was that he had listed China as his work location.

Other tech companies have weighed the risks of trying to satisfy the Chinese government and taken a different approach.

Google, which once acceded to China’s demands to censor content in the country, noisily reversed course in 2010, moving to deliver uncensored results to Chinese users from servers in Hong Kong and souring its relationship with the authorities to this day.

Twitter has been blocked in China for years and says it will not censor posts because to do so would “sacrifice the principles of the platform,” according to Colin Crowell, the company’s vice president for global public policy.

Vine, a short-video service owned by Twitter, operates freely in China without “any special arrangement,” Mr. Crowell said.

Although Facebook — the world’s largest social network, with about 1.3 billion monthly users worldwide — is blocked in China, it hasn’t given up on getting in the country. But it is trying to use commerce to pry open the door, selling ads to Chinese companies and government organizations that want to reach consumers outside China.

Facebook is also studying the experience of Instagram, its separately operated photo-sharing app, which is growing quickly with only occasional blockages by the Chinese government.

“We think this is an exciting opportunity,” Dan Neary, the company’s vice president for Asia and the Pacific, said in a statement.

Analysts say LinkedIn is well positioned to be acceptable to Beijing because it can argue that it makes the employment market more efficient, ultimately spurring the economy. China’s Internet regulators often argue that the main goal of development of the Internet should be to bolster economic growth.

China’s closed markets have given a huge head start to four homegrown companies, which dominate the Internet there: Alibaba in e-commerce, Baidu in search, Tencent in video gaming and instant messaging and Sina in social networking.

LinkedIn itself faces competition from local rivals like Zhaopin and 51Jobs.com, which both have more users than it does in China.

LinkedIn’s partnership with two local players — China Broadband Capital and a Chinese affiliate of Sequoia Capital, an American venture capital firm — has helped it manage its relationship with government officials.

C.B.C. was founded by Edward Tian, a well-connected investor and former entrepreneur who once ran a telecommunications company with the son of a former Chinese president, Jiang Zemin. The company has helped bring at least one other Silicon Valley company, Evernote, into China.

“There have been a lot of problems with companies like Facebook and Twitter,” said Kevin Wang, a C.B.C. spokesman. “We think one of the key reasons is the lack of communication, even the absence of communication, between these companies and the Chinese government.”

The local partners have a strong incentive to help LinkedIn succeed. Under the partnership agreement, they can buy an additional 21 percent of the joint venture for $20 million if certain conditions are met.

LinkedIn does retain control of the venture, securing the bulk of the profit as well as the risk.

Under Chinese law, the joint venture will eventually need to obtain an Internet content provider’s license to keep operating. The license has some benefits, but also some downsides; once granted, the company will be required to store information about its Chinese users in China.

Doing so would make it much easier for the government to demand information on, say, dissidents who use the service — a conundrum that tripped up Yahoo nearly a decade ago and prompted that company to essentially pull out of the country.

Despite the challenges, LinkedIn is optimistic about its efforts in China.

“In the end, the most important consideration for us was providing an opportunity for millions of Chinese professionals to significantly expand their economic opportunities,” said Mr. Durzy, the LinkedIn spokesman. “We want to get it right in China, so we will continue to listen and learn."