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Yahoo has a real China problem these days. The company is currently embroiled in a lawsuit in a California federal court over its role in turning over customer information to the Chinese State Security Bureau. That information, which Yahoo says it was required to provide under Chinese law, landed both Shi Tao, a journalist, and Wang Xiaoning, a democracy activist, in jail. Both are serving 10-year sentences. There are credible reports that both have been tortured.

Today, Yahoo CEO Jerry Yang and chief counsel Michael Callahan were under attack on the East Coast as well. The House Foreign Affairs Committee in Washington wanted them to answer some tough questions about the way they do business in China. At issue is Callahan’s testimony before two House committees last year: he admitted that Yahoo China did turn over information on Shi Tao, but that executives in Sunnyvale, CA, had no idea at the time that it was Shi Tao that the government was after. Callahan also said that, more important, there was no indication given as to why Chinese authorities were after Shi Tao.

Now, Callahan says that his original account was wrong, and that someone at Yahoo China did know that “providing state secrets to a foreign entity” was indeed the charge being investigated. Callahan and Yang were on Capitol Hill today to apologize for not coming forward to the House Committee with this information, and for the “concern” that this caused the committee.

House Foreign Affairs Committee chairman Tom Lantos led a blistering attack on Yahoo today at the hearing. In his opening statement, Lantos said that Callahan and Yang should be ashamed:

“If you think our witnesses today are uncomfortable sitting in this climate-controlled room and accounting for their company’s spineless and irresponsible actions, imagine how life is for Shi Tao, spending 10 long years in a Chinese dungeon for exchanging information publicly–exactly what Yahoo claims to support in places like China.”

From the other side of the aisle, New Jersey Republican and senior House member Chris Smith said that it doesn’t take a genius to figure out that “providing state secrets” is Beijing’s code for cracking down on antidemocracy activists.

“If the Chinese government would prefer that people not know something about life in China, then they make it a state secret. The so-called state secret the Chinese government accused Shi Tao of violating was to pass on a directive calling for censorship of news on the fifteenth anniversary of the Tiananmen massacre. I look over to the press sitting to our left. If any of you passed on that information, you would be in prison for 10 or more years.”

Yahoo’s Yang, at times faltering and barely audible even at the mike, said that the revelations in the Shi Tao case run “counter to all my personal and professional beliefs.” He reiterated the company’s position: “We continue to believe in engagement in markets like China.” In other words, some Internet for China’s millions of potential users is better than none at all.

Yahoo’s Callahan said that even if the company did know that Shi Tao was being investigated for “providing state secrets,” that doesn’t mean he lied to Congress in last year’s testimony:

“There remains disagreement over whether the reference to state secrets was significant enough to tell Yahoo China anything significant about the case. And I believe that while my testimony could have been more precise, the fundamental point of my testimony remains unchanged: we did not know that the case related to a journalist, dissident activity, or that it was a political case when Yahoo China was required to provide the demanded information.”

Lantos would not let Callahan or Yang off the hook, though. He ambushed them with questions about whether their company considered the Chinese government’s demands “lawful” and whether “Yahoo collaborated with the Chinese police apparatus in the imprisonment of a freedom-loving Chinese journalist.”

Lantos also asked Callahan and Yang to turn around and apologize personally to Shi Tao’s mother and Wang Xiaoning’s wife, who were seated directly behind the two Yahoo executives. They bowed to both women. The women bowed in return, and Shi’s mother wept.

When Lantos asked if Yahoo had done anything directly to help Shi Tao or other imprisoned activists, Yang and Callahan faltered and said no. But they told the committee that the company is working “more broadly”–with other IT companies, human-rights groups, and the State Department–to come up with a code of best practices for doing business in China.

They also said that, in principle, they support a House bill called the Global Online Freedom Act, sponsored by senior member Chris Smith. That bill would make it illegal for companies like Yahoo to comply with the kind of requests that landed it in hot water in the Shi Tao and Wang Xiaoning cases.

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