China's recent crackdown on Internet content could thwart electronic commerce in the coming years, leaving the country behind in the technology race and slowing its economy.
The country recently implemented a new set of rules that would censor content, fine and jail Internet providers and users who spread subversive material, and force Internet providers to track down violators.
"That kind of policing is definitely going to have a damaging effect on electronic commerce and the use of the Internet," said Erik Brynjolfsson, an MIT professor who's currently visiting Stanford University, where he teaches electronic commerce classes.
The new laws cover information that circulates from Hong Kong, Macao, and Taiwan.
Smaller businesses doing business in those countries could be particularly hard hit, said Donna Hoffman, a professor at Vanderbilt University's Owen Graduate School of Management, which is known for its E-commerce program.
"It becomes harder for mom-and-pops to set up shop, particularly if they have to worry about going to jail if someone somewhere doesn't like their content," she said. "It really becomes a nightmare to deal with these Draconian restrictions."
By adopting the restrictive laws, China joins countries like Singapore, which are struggling to both embrace and control the Internet at the same time.
Eventually, such countries will have to choose whether they want to hinder or E-commerce with excessive censorship and regulation, or soften their approach.
"It's an enormous conflict," Hoffman said. "If they continue their repressive policy, they can't mine the Internet for all its potential."
But controlling and censoring data circulating into and around a country is an enormously expensive undertaking, one that will become nearly impossible due to a growth in bandwidth, content and methods of accessing the Internet.
"Ultimately, there will be only one choice: It's not going to be feasible to extensively regulate the Internet because it'll be so easy to route around it," Brynjolfsson said.
Plus, Brynjolfsson added, it's easy for companies practicing business on the Internet to relocate. Companies fearing regulation from one country can set up business in another less-restrictive jurisdiction - or even offshore, as some online gambling companies have done.
But the debate over control of Internet content isn't limited to traditionally oppressive countries. Even the U.S. government is facing the debate over whether to censor harmful content at the risk of burdening legitimate businesses. Although the White House adopted a hands-off Internet policy earlier this year, attempts to control and filter content have surfaced repeatedly - and so far unsuccessfully -- in legislation.
Reuters contributed to this report.