Mrs. Li is one of eight paid staff members of the Wanping Neighborhood Committee, which oversees 1,116 families and 3,103 people in Shanghai’s southern Xujiahui area, where I’ve lived for almost three years. She and her colleagues are assisted by about 100 “official helpers,” retired volunteers who patrol specific streets and buildings. “We’re the bottom rung of China’s governmental administration,” explains Mrs. Li. “Zhu Rongji [China's reformist ex-premier] called us ‘China’s little lane presidents.’”

Neighborhood committees normally provide social services like finding people jobs, and organizing entertainment like films, dances and discussions for residents. But they also are involved in personal matters: They enforce the one-child policy, mediate family conflicts, intervene in domestic violence disputes, and turn in Falun Gong adherents and potential dissidents.

But with SARS, the neighborhood committees are getting really personal. They decide which residents must be quarantined, conduct cleanliness checks of homes, and even slaughter the household pets of people suspected of having the disease. “The city government gave us a directive to publicize SARS and mobilize the masses, but we have a lot of leeway in the specifics,” according to Mrs. Li’s boss, Secretary Qi. “We’ve given the Official Helpers 1,500 handbills about hygiene to canvas the neighborhood. Our slogan is ‘Three mores, one less: Wash hands more, open windows more, clean house more, and go out less.’”

Strict quarantines form the heart of the anti-SARS campaign. Residents returning from SARS hotspots like Beijing and Hong Kong are forbidden to leave their homes for two weeks, while visitors must file daily reports about their body temperature and activities. If someone has a fever they are legally bound to turn themselves in — or risk execution for deliberately spreading the disease. “Every single person must be in our hands,” explains Secretary Qi. He presents a letter from one resident who returned from Beijing, thanking the committee for bringing him groceries while he was quarantined and for calming his frightened neighbors. “Another man was running a fever and turned himself in so we took him to the hospital,” says Secretary Qi. “One night he snuck out, and the hospital called us. We found him at home and dragged him back.”

But for those who are not forthcoming, there are the “designated helpers,” government-appointed gossips who catch people who do not turn themselves in.

“When I came back from Hong Kong a few weeks ago, the neighborhood committee somehow heard and showed up on my door,” complains Caroline Cheng, a gallery owner in Shanghai. “They said I couldn’t leave the house for two weeks. When I went to pick my son up from school, the neighbors yelled at me and then the committee came and yelled at me. I took to sneaking out late at night, and finally couldn’t take it and checked into a hotel as a visitor.”

Caroline Cheng’s story is not unique. Harriet Wu, a 24-year-old journalist, has a friend who came back from a trip to Hangzhou and was ratted out by a classmate, and sent home for quarantine. “I don’t know what motivates people to turn someone in; maybe it ingratiates them to officials,” she says. “It’s the turning-people-in that most resembles the Cultural Revolution, even more than the neighborhood committees’ surveillance.”

During the nightmare of the Cultural Revolution, the neighborhood committees, created in 1954, were all-powerful. Combined with work units and classroom committees, they replaced the traditional extended family in overseeing every major aspect of Chinese life: They ran their own health clinics, decided whether and when a couple could marry, and assigned housing based on seniority and status. They were also the vanguard of the struggle against counterrevolutionary thought, encouraging neighbors, colleagues and even family members to inform on each other. Vindictive neighbors and relatives could ruin lives by reporting bourgeois behavior, and personal relations with their neighborhood committee representative or work unit director often determined whether a suspect household was persecuted or just quietly warned to be more careful.

When economic and social liberalization started in the early 1980s, softening the Communist Party’s political grip, the neighborhood committees were gradually transformed or phased out. In their place, China’s population is monitored through the residential ID, or hukou, the equivalent of a Social Security number required for everything including getting a job, renting a house, checking into a hotel, buying a cellphone, and attending school.

While a right to privacy has never existed in China — even today there is no direct translation for “privacy” in Chinese; the closest approximations mean “secrecy” and “privately owned” — the government’s recent hands-off policy created an expectation of privacy, of zero interference in personal matters. In China today, you can basically do whatever you want, go wherever you want, date whoever you want, read, listen to, and watch whatever you want, and even say anything you think, no matter how subversive, as long as you don’t post it online or unfurl it on a banner in Tiananmen Square.

But SARS has rolled back much of the personal freedom the Chinese were beginning to take for granted. Early on, the same neighborhood gossips who keep the people from hiding anything from the government also make it impossible for the government to hide much from the people. When a massive coverup of the SARS epidemic in Beijing was revealed in late April, China was in a state of hysteria. Stores sold out of vinegar, disinfectant and quack anti-SARS herbal remedies. Peasants put up blockades around their villages and rioted, attacking hospitals. Internet chatters clattered that SARS patients should be shot. More than half the people in the streets sported masks, usually the cheap, ineffective cloth variety adorned with Hello Kitty or — ironically, given the official Chinese position on the then-ongoing Iraq war — U.S. and British flags.

Fear causes people to overlook things they might normally protest. Just as the terrorist threat has eroded civil liberties in America, panic over SARS has prompted the Chinese people to quietly submit to an array of new restrictions. Temperature checkers zap every person entering hotels, hospitals, gyms, restaurants and stores. Some venues post signs denying service to persons coming from infected areas.

The renewed neighborhood committee vigilance prompted by SARS suggests that the mindset and infrastructure that allowed the Cultural Revolution to happen are not entirely in the past. The prompt, pervasive crackdown on the disease shows the continued vitality of government structures that could also easily be applied to causes less noble than an international health crisis.

But the past will not so easily repeat itself. Most of the newfound economic and social freedoms seem inviolate. Case in point: Jin Yingdi, 75, of Shanghai’s northern Hongkou district, had neighbors who long complained about the smell from the seven cats she kept in her tiny apartment. Her neighborhood committee used SARS as an excuse to confiscate five of the animals. Cleverly seizing on her right to be litigious, Jin Yingdi decided to sue her neighborhood committee for violating her property rights.

Places like Xiangyang Market, its Beijing equivalent Silk Alley, and similar retail centers in all of China’s urban centers are hotbeds of pirated goods, but the trade is not confined to their boundaries. On every pedestrian overpass, subway stairwell or crowded street, there is at least one man, invariably middle-aged with greasy hair, opening a briefcase to reveal a selection of imitation name-brand perfumes. Next to him, resting on a folding chair, is the inevitable cardboard box crammed with pirated discs.

Mainland China is the piracy capital of the world. China’s imitation industry feeds not just its own economy, but those of other nations as well; 46 percent of the pirated goods sold in America come from China, according to the International Intellectual Property Alliance (IIPA). The Quality Brands Protection Committee (QBPC), an anti-piracy body under the auspices of the China Association of Enterprises with Foreign Investment, claims that government statistics show that counterfeits outnumber genuine products in the Chinese market by 2 to 1. Pirated audiovisual materials occupy 95 percent of the market in large cities, and the proportion approaches 100 percent in the rural interior. Stricter laws have stemmed the tide only slightly, because anti-piracy law, like most of Chinese law, is enforced haphazardly at best, and everyone knows it.

Enforcement efforts are made even more futile by popular acceptance of piracy. Rising incomes have created an enthusiasm for foreign goods and brands, but Chinese consumers have become so accustomed to cheap, pirated goods that they are unwilling to pay full prices for the real thing. Traditional Chinese moral relativism combines with a modern sense of short-term opportunity cost and self-interest to justify what everyone knows to be wrong and illegal.

Piracy is one of the largest flies in the ointment of China’s supposed economic miracle. Dollar figures for losses attributed to counterfeit goods are notoriously hard to pin down, but there appears to be little question that whatever the numbers are, they are big — the Business Software Alliance (BSA) claims that software piracy in China alone costs the industry $4 billion a year worldwide. And while the multinational giants will hardly be sunk by piracy’s encroachment on their profit margins in China, the situation is especially grim domestically. Piracy severely hampers the international competitiveness of Chinese companies, and the lack of adequate intellectual property protection dampens the impetus for local corporate, scientific and artistic innovation.

And yet, China’s intellectual property mess isn’t entirely bleak. Piracy may be bad for business, but it’s great for consumers, and in some ways good for society. By providing small-business opportunities to the uneducated, unemployable underclass, piracy helps relieve China’s mounting social unrest. The production of imitation goods, or “daoban” in Chinese, has become one of the country’s major light industries, employing both the growing masses of workers laid off from state-owned industrial behemoths and the floating population of illegal migrant laborers.

Copycat publishing also serves as one of the only chinks in the armor of state censorship. Banned books, even a Chinese version of the scandalous “Private Life of Chairman Mao” and the works of Nobel Prize winner Gao Xingjian, can be found at pirated book vendors, usually operating from bike carts parked near busy bus stops. Films from the U.S. and elsewhere can take as long as three years to arrive at local theaters and even longer to come out on legal DVD. But illegal copies of Hollywood blockbusters appear in video compact disc format weeks after their release — and sometimes they appear even before their release, as copies of promotional versions. Without piracy, the Chinese music scene would still be relying on home-copied cassette tapes and John Denver for inspiration, as it did in the 1980s.

In China, the forces of 21st century technology, consumer choice and pop culture are converging on a society struggling desperately to modernize, producing contradiction after contradiction. China in some ways represents a nightmare scenario for corporate America, a post-Napster Wild West chaos where any intellectual property can be illegally copied, and commonly is. But China is also emblematic of the growing pains of much of the developing world. Blame Confucius, blame Mao, blame Deng Xiaoping’s trickle-down economics, or blame Western companies’ unrealistic pricing policies: Imitation is a way of life in modern China, and it will take more than diplomatic pressure or a handful of laws to eradicate it.

In Shanghai’s Xiangyang Market, if you ask one of the “Hello? CD? DVD?” people what exactly their racket is, he or she will laugh nervously about avoiding the police and scurry off. Better to ask to see their stash, as I did of one woman, whose short, sturdy build and round face identified her as coming from far south of Shanghai.

She bade me follow her, a meter or so behind to avoid arousing suspicion, through the maze of stalls overflowing with tourist kitsch and name-brand rip-offs, out of the market, and to a small room at the back of a men’s clothing store, where a large box of CDs was produced for my perusal. Later, back in the market, the same woman approached me again, offering to lead me to a few more suppliers. One consisted of two men squatting behind the bushes next to a Japanese noodle shop; another operated out of a stall selling watches and novelty lighters; and a third hid behind racks of sequin-encrusted tube tops. My guide explained that, while she technically is employed by the first place, other vendors will pay her a few pennies for each customer she brings by, and a few more for each disc purchased.

The lanky young man handling the stash at the first stop confirmed that the scores of CD/DVD agents prowling the market are all migrants — outsiders or “countryside people,” as they are derogatorily called. Each “shop” employs 12 to 14 scouts. They buy the discs for 5 RMB or renminbi (60 cents), through an intermediary to keep them from incriminating the supplier if arrested, and on a good day resell about a hundred discs for around $1 to $1.20 apiece. He has been in the business for a couple of years, and has been arrested three times in periodic police raids. Each time, he was imprisoned for three months, paying fines totaling over $1,200, but he always returns to the market.

“This is a hard business, but so is all business in China, and this isn’t as bad as most. It sure beats manual labor, and it beats staying in the countryside,” he shrugged. “It’s not like I earn much money doing this, but it’s a way to survive.”

Piracy is arguably the most classic example of free-swinging capitalism in China’s transitional economy. Operating independently of five-year plans, growth targets and restructuring directives, it and other illegal or semi-legal sectors have the flexibility to accommodate the Chinese dispossessed by harsh but necessary economic reforms and the shrinking of the social safety net. Cost-slashing state-owned enterprises have fired 25 million employees since 1998, and the pensions of countless more have dwindled to uselessness. Some 80 million migrant laborers have seeped into the cities since the launch of Deng Xiaoping’s trickle-down reform policy of developing the urban coastal areas first. Without residence permits, this floating population cannot legally work, find accommodation or school its children. Foreign investment is the great white hope of China’s emerging economy, but these refugees of the post-socialist economy have no hope of getting work with a foreign or foreign-invested firm. Ripping off the products of a foreign or foreign-invested company is, for them, a far more golden opportunity.

And the general public urges the pirates on. After more than a decade of proliferation, piracy has become so commonplace in China that consumers rarely give it a second thought. While everyone knows pirated goods are illegal, and most acknowledge that it is wrong on some level, or at least bad for the economy, no one cares. Winston Zhao, a partner with the law firm Jones, Day, Reavis and Pogue, who is based in China, cites the Chinese proverb, “If everyone does wrong, no one will be punished.” China Record Co.’s Tang Haiyang recalls the evolution of piracy’s acceptability. “No one thinks of it as theft anymore. At first, there was no choice but to pay 30 RMB [$3.60] for a real album, which is a day’s salary for most. Then the pirates came along, at 10 RMB [$1.20] for a CD, and at first people were uncomfortable, and would still pay more for the real thing. But now, everyone’s used to it, it’s normal and accepted, and people just think, ‘It’s very cheap, very cheap, that’s good!’”

Moreover, dynamics within both traditional attitudes and the current social climate help absolve any residual guilt about buying pirated goods. Traditional Chinese morality is relative, reflecting a hierarchy of responsibilities and priorities rather than Judeo-Christianity’s clear-cut absolutes. The Confucian ethic dictated the individual’s behavior based on their position in a rigid hierarchy, starting with the nation, then the emperor, then descending levels of government, followed by the household structure, according to age, gender and rank. One owed filial devotion and obedience to those above, and guidance and providence to those below. Stealing medicine for a sick parent would be a forgivable offense, for example, and what would be considered correct for a rich landlord would of course be wrong for his servant girl.

While the Communists abolished the Confucian structure, its rationales persist throughout the new social order. In the current hierarchy, the conducting of business and the making of money have dethroned the previous emperors of family, nationalism and revolution. Decades of Maoist witch hunts followed in rapid step by the “get rich quick” obsession have created two generations with little if any community ethic, allowing easy, low-risk profits to take priority over right and wrong and long-term economic growth.

Additionally, the lack of cultural emphasis on individuality and well-developed critical faculties has lent Chinese society a propensity to mimic. Foreign models, for everything from fashion to architecture to urban and economic development plans, are commonly adopted wholesale without any consideration of or adaptation to local conditions. For example, a large company in one Shanghai suburb has erected for its office a small but precise replica of the Capitol Building, seated a few meters from a freeway and sandwiched between a rice paddy and a factory. The reasoning appears to be that if something is good in the first place, then copying it must also be good — just as Chinese artists have copied their predecessors, down to the last calligraphic stroke, for centuries.

China’s economics-obsessed leadership is well aware of the damage done to its economy and international reputation, and is proactively reforming its legal code, although not the system that keeps the laws from being enforced. Chinese trademark law has progressed impressively since the promulgation of its first patent law in 1985. The most recent revisions were enacted in October last year just prior to China’s WTO ascension, and significantly extend both protections and liabilities. According to Winston Zhao, the new law is very close to the international standard of the Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS) and puts China a step ahead of Taiwan and Japan by criminalizing not only production of imitation goods but also their sale and even their purchase.

But rule of law has been a problem for China ever since Shang Yang introduced the first legal code in the fourth century B.C.E. and as thanks for his effort was torn to pieces by five horses running in different directions. An old saying points out, “Heaven is high, and the king is far away.” Given its size, disorganized economy and opportunistic consumers, China is a place where anti-piracy efforts would be difficult to implement even under the best of circumstances. Authorities tend to focus more on appearances than substance, and it remains a land mired in symbolic gestures and short-lived campaigns. China watchers are fond of bemoaning the country’s lack of a coherent legal system, but that is only half of the equation. The flip side is that Chinese law is relative, depending on whether you get caught and, more importantly, who you are (and who you know).

The shortcoming now is not in the law itself but in the enforcement, or lack thereof. Despite the advantages of central control, a uniform national legal system and few civil liberties, enforcement efforts are haphazard. One problem is the diffusion of responsibility for oversight and enforcement activities. The Public Security Bureau handles only major cases and those that involve safety concerns; the State Administration for Industry and Commerce (SAIC) juggles general problems of trademark violation; and another bureau handles complaints where shoddy pirated goods threaten a company’s reputation. Both the Cultural Bureau and the National Copyright Administration deal with copyright piracy; the State Intellectual Property Organization handles patents and policy; and the State Drug Administration addresses pirated medicines.

As a result, the police are not primarily involved in or charged with the enforcement of anti-piracy law. “The police have too much to do, are too busy, and can’t get involved in a case until after the judiciary has ruled it a criminal case,” explains Zhao. However, a case cannot reach the courts without evidence of wrongdoing, so the impetus for tracking down violators falls on the aggrieved company. And even when the police are charged with enforcement activities, they cannot be expected to always recognize which goods are fake.

Also, authorities on the local level will often seek to protect pirate factories that are beneficial to the area’s economy. Bribery and corruption exist, but are declining, and perhaps present less of a problem than self-interested and selective enforcement of piracy law.

Ultimately, the task of enforcement rests at the local level, but China’s local leadership is at best inept and lacking in the resources it would take for a campaign of the requisite magnitude. County- and township-level cadres are among the last vestiges of the Iron Rice Bowl system, and as such are terrified of rocking the boat. Given the already fragile social and economic conditions of rural China, it is hard to blame the petty bureaucrats for their reluctance to crack down.

Until it progresses beyond the current transitional economic and enforcement systems, it is virtually impossible for China to eliminate the production of pirated goods. But there is one arena in which change may be coming on the demand side, as demonstrated by consumer attitudes toward luxury brands.

Brand-name clothing and accessories, authentic or not, and preferably foreign, are incredibly popular with the Chinese. The expanding numbers of upwardly mobile, white-collar urbanites are more savvy about the prices and associations of upscale Western brands than most of their Western counterparts. Even farmers and migrant laborers can be spotted sporting the Nike swash, and you can bet your sneakers that they could never afford the genuine article.

For China’s status-conscious nouveau riche, brands provide a fast track to prestige. They serve as an easily quantifiable marker of rank and wealth, establishing the wearer or bearer’s position in the monetarily determined social pecking order. The absence of individualism in Chinese society also means heightened susceptibility to advertising’s promises to provide the buyer with a certain prepackaged image and identity. Although China had its own brands almost a century ago, decades of Maoist drabness made brand names a novelty upon their reintroduction. Adding to that novelty is the glitz of the modern branding campaign, and an open-armed affection for things foreign that flies in the face of China’s innate national parochialism.

“In China, the income disparities are so wide that any means of standing out at a glance is valuable,” observes Godfrey Firth, a consultant with market research firm CBC. “Brands are an instant way to advertise one’s financial ranking, which is increasingly required to find a job, get contracts or attract a potential spouse. Any way of distinguishing oneself as not a peasant is good. Moreover, people have yet to move beyond the Chinese tradition of ostentatious display of wealth, such as elaborate weddings and funerals. Showing off, the whole peacock thing, isn’t seen as bad or tacky.”

Buying authentic brand items carries more weight for those who can afford it. A typical example is a former Chinese colleague of mine who boasted about spending the equivalent of $40 on a pair of socks at Lane Crawford. However, copies provide an acceptable if less prestigious alternative for the vast majority of the population who cannot. Firth points out that “if people could afford it, they would buy real brand items; most just can’t, but they still want to show off as if they could. When they get rich enough, they do buy real brand items and boast about it: ‘Someone bought mine for me in Japan, and paid so much, but yours is fake.’”

Although definitive statistics are unavailable, imitations probably equal or outnumber originals for popular low-end brand clothing and accessories, such as casual wear or items featuring popular icons like Disney and Peanuts characters. A 2000 South China Morning Post article cited Nike as estimating its piracy rate at 50 percent, although the company now claims a more optimistic 15 to 20 percent.

High-end brand products are less pirated, as their higher quality makes them harder to convincingly replicate. Benjamin Simar, assistant operations manager with risk management firm Hill and Associates, points out that Chinese buyers of luxury brand goods are increasingly “sophisticated consumers” who view the purchase as an investment in a certain image and are unwilling to buy copies. Luxury goods are also one of the categories subject to intensified government scrutiny and to aggressive action by the companies whose trademarks are violated.

As China develops, its consumers may grow less willing to purchase pirated clothing, cosmetics, food and cigarettes, and perhaps with time that desire to distinguish themselves will evolve into a fan loyalty sufficient to cause them to reject pirated music, films and software. But a world of difference separates the English-speaking Shanghai slickster willing to pay thousands for a Hugo Boss suit and the illiterate, unemployed Hunan peasant who makes only hundreds a year copying Hugo Boss suits.

Yes, improved legislation and heightened government commitment are steps in the right direction. Corporate piracy is heading toward extinction, as listed Chinese companies that have offices overseas and high volumes of exports are susceptible to international lawsuits, and software piracy is declining. However, the Communist Party has proven itself unable to address the desperation of the economically disenfranchised, who will continue to gravitate toward piracy until the legitimate economy can provide a better option.

When he starts to growl into the mike, the crowd goes wild. Young men, just out of college and fleeing the conformity of their weekday white-collar grind, headbang in their Kurt Cobain T-shirts while rival rockers sporting the image of Che Guevara across their chests coolly nod in approval. A gaggle of female art students jingles gaudy imitation Tibetan jewelry, trademark du jour of China’s budding bohemians, in rhythm to the music. A few of their less reserved sisters periodically toss undergarments at the stage.

The free concert was hastily organized only a few days before, and most in the audience give the same answer as to how they found out about it: “Yeah, I heard about it on the rock BBS too. So … what’s your alias?”

In Beijing, these tech-savvy young urbanites are known as the “Weiku generation.” Weiku uses the Chinese characters for “great” and “extreme” to create a local version of the English slang phrase “way cool.” It describes a generation of young, well-educated and relatively affluent Chinese hailing from broadly varied backgrounds. They have little self-concept of a shared identity, but are increasingly becoming a collective economic and social force to be reckoned with in China’s cities. They also happen to represent the bulk of Chinese Internet users, and are uniting to co-opt the Web for their own purposes — under the ruling Communist Party radar.

The members of the Weiku generation are a far cry from the 30-something entrepreneurs who officially represent the development of the Chinese Internet. A year ago, these dot-com hustlers were gods: During China’s 1999-2000 Internet boom the bright-eyed founders of the country’s earliest dot-com start-ups quickly became economic superstars. Lauded as the shining “Face of New China,” these fast-rising aspiring moguls often shared one significant trait: a U.S. education. They brought back to their homeland an American entrepreneurial spirit, modern managerial techniques, billions in U.S. venture capital and a very American-like vision of the Internet’s possibilities.

And like their American counterparts, these Internet carpetbaggers crashed and burned when bust followed boom. In a scenario all too familiar to Western eyes, they wasted hundreds of millions of dollars trying to be all things to all people, building elaborate portals that no one visited. These returning entrepreneurs had the money and the MBAs, but they didn’t have the market knowledge — the China they came back to was far different from the one they had left.

They may not have struck Internet gold, but they did achieve one notable success: They got the Weiku generation online. Motivated in part by the massive ad campaigns bankrolled by the start-ups, the Weiku generation started logging on and experiencing the Internet for the first time. And when they discovered that the portals weren’t leading them to anywhere they wanted to go, they began to create their own destinations — an organic, grass-roots Web of small niche sites, bulletin-board-centered communities and personal pages. In the shadow of billboards declaring “Subordinate yourself to the People and the People will take care of you,” young Chinese Web users are now discovering and expressing their individual perspectives through the marketplace of ideas — a place that can be found only online in closely controlled China.

Dissent in China is still a perilous activity, but in a country where formal organizations, even something as innocuous as a fan club for a pop star, are illegal unless created under government auspices, the Internet’s capacity for bringing like-minded people together is both unparalleled and powerful. Topical Web postings have provided an underground network through which Weikus of similar interests from around the country can meet one another and organize everything from raves to rock concerts to art exhibits to avant-garde plays. The organic Internet being created by this generation may have only marginal financial prospects, but it promises a more important impact. For the first time in over 50 years, individuals in China are empowered by open, uncensored and unlimited access to information; are discovering their own voices in the forum the Internet provides; and are organizing themselves outside of the constrictive umbrellas of state, party, work unit and family. The Internet carpetbaggers had the money and the fancy degrees, but the Weiku generation is remaking China.

In 1994, the number of Internet users in China could be measured in the thousands. Today, according to NetValue China, 21 million Chinese are currently logging on. This represents merely 1.6 percent of the country’s vast population, but it is expected to grow rapidly — NetValue statistics indicate that 73.5 percent of China’s Net users started going online only in the past two years.

Those two years, not coincidentally, saw the founding of a flurry of dot-coms bankrolled by Western investment and managed by well-educated Chinese who had observed the West’s Internet boom from their classrooms at places like Harvard and Stanford. But by the time they were ready to jump into the Internet fray, the American market was saturated. So they packed up their diplomas and hurried back to the motherland they had left behind a decade earlier.

They were following in a long and honorable tradition as they came back to mold China in their own new-economy image. Returned students have played an important role in China throughout its modern history. Sun Yat-sen, Chiang Kai-shek and influential writers such as Lu Xun studied in Japan in the first decade of the 20th century. Deng Xiaoping, Zhou Enlai and Ba Jin studied in France in the 1920s and ’30s. The returnees now in their 30s were, in the 1980s, among the first group of students to go abroad since before 1949.

The returnees quickly established themselves in the emerging Chinese Internet market, with their access to American capital giving them an edge over potential local contributors. Their investment and business backgrounds helped them present their plans to potential investors, who in turn trusted the returnees’ business savvy precisely because of their American education.

“Investors were comfortable with them; it was a matter of trust,” explains Tony Zhang, a returnee who founded ChinaNow.com, a bilingual entertainment site. “Take [the lifestyle portal] E-Tang, for example: With six Harvard Business School grads, investors thought it was a sure bet, with a lot of money to be made.” (Ironically, E-Tang’s numerous Harvard pedigrees proved an impediment to its development; according to industry rumors, the company was riven by an ego-driven battle among its MBAs. Four of the original six have since left, and E-Tang refuses to comment.)

Money poured in. E-Tang brought in $48 million in investment, Sohu.com, China’s Yahoo, $60 million; Sina.com, $68 million; and Netease, $70 million. The returnees became instant stars, and the foreign cash provided the Chinese economy with the infusion it needed to break out of its 1998 slump.

But almost as quickly as it started, it was over. Sohu.com, which listed on NASDAQ at a high of $13.125 on July 13, 2000, is now a penny stock battling to stay listed — and Sohu is considered in good shape compared with many other sites. E-Tang and RenRen.com (a greeting card site) are scrambling for new business plans as their venture capital dries up. ChinaNow.com and ClearThinking.com, a business news site, are desperately combating rumors of their demise. Gaogenxie.com, a women’s site founded by a fashion designer who left for the U.S. in 1983 with an American husband and returned only in 2000, is one of many to vanish from the Net altogether.

What went wrong? The same litany of mistakes that doomed Western start-ups can also be seen in China — hubris, lack of revenue models, inexperience — but the most obvious problem was the immediate inundation of the Chinese Web with portals. Everywhere you looked, there were ads for the new portal of the week, but very little Chinese-language material existed that could be searched for.

The portals tried to adapt quickly, setting up their own content sites, and foreign-funded general content sites also sprang up. But virtually all sites catered to a broad audience, attempting to offer a bit of everything for everyone; only a few latecomers sought to establish niches that would actually attract real people. According to Tony Zhang, “to do a niche Web site, you need to understand the niche. The founders don’t, the investors don’t, so they focused instead on the portals, expecting it to trickle down into the niche sites, but the economy collapsed before any trickling down could occur.”

Ultimately, the chief legacy of the dot-com boom was the expansion of the Internet itself. Charles Zhang, an MIT Ph.D. who founded Sohu.com, says China’s Internet growth would have started a good two years later if it hadn’t been for the returnees and their American investment. Some analysts, though, believe this jump-start is precisely the reason that China’s Internet boom imploded so rapidly: The market wasn’t ready for it.

But neither were the returnees ready for the market. The generation that had spent a decade abroad did not understand what the generation that is flocking to the Net wanted. China is changing, fast, and the students who sought fortunes in the West have very little in common with the young generation that has surged to prominence in their wake.

The American-educated dot-com CEOs enjoy a few superficial similarities to the Weiku generation. Both represent the elite of their age group, both are more Westernized than other Chinese and both are full of bold plans for China’s future and their own. But the similarities end there.

The returnees spent their childhoods in the chaos and terror of the Cultural Revolution. Most of their parents were intellectuals and academics, mainly in the fields of science and medicine. Seeing their parents purged, persecuted and “struggled against” as “rightist elements” and “poisonous weeds” was a formative experience for many, and probably influenced their later decision to leave China. Tony Zhang’s parents, both doctors, were hounded because of their profession and their families’ capitalist and nationalist backgrounds; he left for the U.S. in 1982, and his parents joined him three years later, not to return.

The Weikus, in contrast, represent a cusp generation, born toward the end of the Cultural Revolution. Their parents are mainly from ordinary backgrounds, and most had no chance for any education beyond middle school, as schools were shut down between 1966 and 1976. They were thus very focused on securing for their children the educational opportunities they lacked, and many Weikus are the first in their family to graduate from college.

Their memories are formed less by political chaos than by the economic deprivation of their childhood in the early 1980s, before Deng Xiaoping’s economic reforms and opening to the outside world began to take effect. “Once a year, for Chinese New Year, our extended family would kill a chicken, and it was a big event. We had no candy then, so I would beg some sugar from my grandmother, mix it into a glass of water and drink it very slowly,” reminisces a 26-year-old Shanghai musician. Most are only children, products of the one-child policy instituted in the mid-1970s, although the “little emperor syndrome” is reserved for somewhat younger only children who grew up in relative prosperity after China’s economic reforms were already in full swing.

When the returnees came home, they found a China that had changed drastically from an impoverished planned economy to a bustling capitalist chaos. At the same time, so had they, and a gulf thus emerged between them and their friends and families.

Meanwhile, the Weikus had grown up and staked their claim to represent the future of China. Generally speaking, compared with the rest of the Chinese population, the Weikus are better educated, more culturally aware, more ambitious, more Western in tastes and sensibilities, more open to new ideas and — influenced perhaps by post-Cultural Revolution cynicism — resolutely indifferent to both authority and ideology. They may listen to the slushy Hong Kong and Taiwanese pop preferred by the masses with a certain guilty pleasure, but they vary their diet with both Western and Chinese rock.

Members of the Weiku generation dominate China’s newly emerging avant-garde art and independent music scenes, and are also emerging as some of the newer stars in theater and film. A disproportionately large number of Weikus, after receiving visual arts degrees, went to work in advertising and design companies. Some of the more enterprising have launched their own companies, often in the areas of Web site and graphic design. They’re willing to wear traditional business attire to work, but accessorize their clothes with a wry smile of practical irony. The officebound among them generally invest their surplus time and funds into riding the stock market and the latest fashion trends.

The larger Chinese society views the Weiku generation indulgently, as kids having their fun but who will snap out of it as they grow up. But it views returnees with considerably more ambivalence. Chinese popular culture is full of negative images of the returned foreign student as a character toadying to foreigners and authorities while condescending to Chinese who have not gone abroad. Pop rapper Zhang Zhenyu includes on his 2001 album a track about returnees titled “Bullshit.” The song’s narrative voice complains about a returnee in his office who flatters the boss while lecturing his fellow colleagues. “You say you’ve got an American degree, I say you’re just farting!”

The returnees themselves, understandably, claim that there is little hostility toward them, mainly just envy of their superior opportunities and salaries. Tony Zhang says that in big cities, returnees are usually treated with respect. “Outside, though,” he adds, “there’s often a view that returnees have abandoned things Chinese, that they’re a ‘Western pig with a Chinese face.’” He concedes, however, that he doesn’t “actually hang out with many returnees, as some of them have such superior attitudes toward the local Chinese.”

Most of the Internet carpetbaggers failed to see the Weiku generation as ripe for exploitation. They targeted instead, for e-commerce reasons, an older and wealthier demographic group that is currently not online and evidences little interest in going there. That was one major mistake. But even the dot-coms that tried to go after a younger generation missed their mark. E-Tang defined a target group it called “Generation Yellow,” as distinct from the “Generation Red” of the Cultural Revolution. E-Tang’s press kit defines the group as “18-35 years old, educated, technology savvy and with a relatively high disposable income.” The problem is that urbanites ages 18 to 35 encompass at least three distinct generations, with vastly different sensibilities and tastes: the 30-something Cultural Revolution babies, the 25- to 30-year-old reform-era generation and the under-25 post-reform group, those brassily demanding “little emperors.”

“In China, things are changing so quickly, a new generation gap emerges every three to four years,” according to Tony Zhang. “I think they [E-Tang] are very stupid. ‘Generation Yellow’ is the typical example of having been in the States too long.”

“The portal landscape is over,” declares Sohu.com’s Charles Zhang. A look at where the action is appears to prove him right — a fact that may have huge political implications.

Young Chinese Web surfers invariably report that they almost never visit the big sites, apart from Sina.com for news and sports scores, Netease for e-mail and Sohu.com for Web searches. Most of their time is spent on pages specific to their area of interest — sometimes foreign sites made accessible with translation software but, increasingly, homegrown niche-oriented sites. Designers surf graphics sites, novelists visit literary sites, musicians frequent music pages and artists peruse online galleries. There is little brand loyalty toward the major portals, with interest reserved for small, specific sites founded by the users’ peers or friends.

Niche sites generally are smaller and thriftier, and rely on word of mouth rather than glitzy ad campaigns to build their brand name. Their funds derive from activities that tie in with the site, rather than the traditional e-commerce and ad sales. A typical niche site is Shanghai’s Menkou.com, which covers the club and music scenes and derives much of its income from event promotion. “Sites like this can’t make much money,” warns Murphy Wu, a Weiku hipster from Hangzhou and director of the Shanghai chapter of IandI Asia, “but with good customer service and a long-term vision, they can develop a loyal user base that will pay off in the long term.”

One of Shanghai’s most active Web personalities is a recent college graduate who is so subsumed by his online identity as “Bunnyman” that his friends rarely use his real name. A guitarist in an underground punk band, Bunnyman covers music for Menkou.com as a day job, but he also has his own music site, Rockself.com, and started and runs the Shanghai Rock BBS, a forum that is partly responsible for the phenomenal growth of the city’s music scene over the past few years.

Other topical Web sites and chat rooms have similarly contributed to the emergence of virtual cultural communities. These sites provide a soapbox for individuals that China has never had before, even for those with volatile views. Dissidents with “dangerous” political ideas can host their messages on Web sites with foreign domain names, and less controversial material can be freely posted domestically.

The Chinese government views the growth of the Web in China with intense interest and glimmers of disconcertedness, recognizing its potential as a tool of both economic progress and political dissent. But so far, despite widely publicized (in the West) periodic crackdowns on dissident Chinese who use the Net, the government has actually taken a relatively positive approach, investing heavily in broadband infrastructure and research while encouraging state-owned enterprises and government bureaus to establish online operations. Apart from blocking foreign news sites like Reuters, the New York Times and anything concerning Falun Gong, the Communist crackdown on the Internet that everyone has been waiting for has yet to materialize, with regulations remaining overwhelmingly benevolent.

Which is not to say that people enjoy untrammeled freedom of speech on the Internet in China. Instead, most Chinese know what’s acceptable and what isn’t. Online chatters can get away with scathing criticisms of the government and the Communist Party, but most know better than to make actual statements of condemnation. For example, in a chat room or on a bulletin board, one can criticize an official, a policy or corruption, or can ask a question such as “Why is it so important to get Taiwan back?” But one can’t come out and say “Taiwan should be free!” or “Down with the Communist Party!” There is free speech online up to a point, and that point is clearly delineated and widely known. The difference is that the boundaries of permissible speech on the Web are so much broader; what is the tightest of wiggle room in traditional Chinese media is a football stadium on the Internet. And right now, it is the Weiku generation that knows how to play ball.

The political passions of Chinese youth have long since been diluted by the market economy anyway, and while there is little fondness for the Communist Party, the Weikus see no point in replacing the bastards they know with the bastards they don’t. What they consider more important is to push China’s stagnant culture to start developing along with its economy, and to stimulate more critical thinking, now so lacking in cautious, conformist Chinese society.

But the proliferation of small niche sites is without question challenging to the party. Murphy Wu believes that while the government fears the Internet as a source of open information, the large sites are seen as safely self-censored. “The government is more afraid of these small, individual sites, which are hard to regulate and even harder to keep track of. They find these online communities particularly worrisome.”

From a societal perspective the verdict on the Internet is still out. Activities like chatting and online dating are generally considered unhealthy, but even those have helped pry open a conservative society a little. Everyone I spoke with repeatedly stressed the new availability of information as the Web’s most important contribution to China. The marketplace of ideas, kept closed throughout China’s market reforms, has been forced open by the Internet. Books that are banned in China, such as those by Nobel laureate Gao Xingjian, can be read online, and manage to develop a strong following. People have access to real, undoctored, unbiased news. Niche sites, personal sites and online communities are thriving, and are likely to continue expanding along with the Internet’s reach into the population.

Sohu.com’s Charles Zhang sees an even larger impact. “For the consumer in China, the Internet is a vastly more important medium than it is in the U.S. There are few options here for real news, real information. Five years ago, nobody had a brain, but everyone has their own brain now. With more access to information, people are listening rather than just hearing, are thinking rather than blindly following directions. The Internet empowers the individual.”

In a nation where individualism has been culturally taboo for several millenniums, where “the peg that stands out will be the first pounded down,” the empowerment of the individual in the information revolution represents something more radical than Mao Tse-tung ever imagined. Its subtle subversions will be more momentous and long lasting, and perhaps more dangerous to the established order, than high-profile political movements like Tiananmen Square.