There have been a lot of stories and debate about China censoring its media, banning websites, and forcing foreign companies like Microsoft to obey its anti-free speech directives. China of course wants to keep a tight lid on the exchange of information among Chinese people and protect its image, but I think this is impossible in the Internet age.
Moreover, the threat of the Internet is not just about Chinese democracy activists and Falun Dafa supporters exchanging tracts and criticizing the government. I think a far more potent aspect of the Internet lies in its ability to spread damaging news, facts, soundbytes, photos, and video to those in China and elsewhere who might otherwise have an ambivalent attitude about the government in Beijing. The spread of the Internet has also coincided with the creation of cheap gadgetry like cell phone cameras, digital audio recorders, and video cameras, and a huge base of people who know how to use them and upload the results to the 'Net for all to see.
An office lady with a cellphone may not seem like a threat to the regime, but what if she gets a text message from a friend saying to check out a crowd in front of a local school, and then she takes a picture of what turns out to be a demonstration, and it spreads all over town by the end of the day, and all over the country by the end of the week?
Consider these recent examples from outside China, and the damage they inflicted upon various people, companies, and countries:
1) "Memogate" involving CBS Evening News, and a supposed 30-year old memo it claimed cast doubt on President Bush's National Guard service. Bloggers with publishing experience examined the document online, and concluded that the fonts used in the memo were probably used with a modern word processing program -- i.e., the memos were forged.
2) Photos of a Korean schoolgirl who was run over by an American armored vehicle. These were spread via the Internet and provoked anti-American anger in Korea
3) Embarrassing and potentially damaging emails from various U.S. corporate scandals, some of which have contributed to multi-million dollar fines, corporate shakeups, and new government regulations
4) The Internet-distributed Taiwanese sex tape from a few years ago, which embarrassed local officials from central Taiwan who were involved (anyone remember the details? My mind is foggy on the points)
5) The Abu Grahib prison pictures, taken with a digital camera, and spread via email and then mass media.
Now consider how similar incidents, captured and spread electronically, could cause problems for local, provincial, and central government officials and entities in China. It could be a cellphone photo of a demonstration or riot, an accidentally forwarded email between a mayor and his mistress, a videotape of an official taking a bribe ... Incidents like these have the potential to really cause problems for the government, because they are so hard to control at the points of collection, distribution, and reception, and ordinary Chinese people -- like ordinary people in many other countries -- are intensely interested in news of scandal, corruption, sex, and official abuse of power.
Imagine sixteen years ago, if five percent of the tens of thousands of people in Tiananmen Square had portable phones, digital cameras, and video cameras, and the content from 10% of those devices had been uploaded and spread via the 'Net? There wouldn't be just one iconic image of the events -- i.e., that guy standing in front of the tank -- there would be dozens, or hundreds. And the government wouldn't have to put out fires in Beijing and a few other big cities -- it'd have a major image problem in practically every city and town where there are people with 'Net connections.