As China holds its annual "Internet summit" today, it's worth reflecting that last week Reporters Without Borders broke a story revealing that Yahoo! provided information to China's government that helped them to identify and detain a dissident reporter (link via Rebecca McKinnon).

In today's Chicago Tribune, Evan Osnos provides a recap of what's happened, including Yahoo!'s response:

Yahoo Inc. co-founder Jerry Yang acknowledged over the weekend that his company gave Chinese authorities identifying e-mail information about reporter Shi Tao, who was sentenced to 10 years in prison for messaging a U.S. Web site about a Communist Party directive. Speaking Saturday at an Internet conference in this eastern city, Yang said his company was legally ordered to cooperate.

"To be doing business in China, or anywhere else in the world, we have to comply with local law," Yang said.

But Yahoo's handling of the case, first detailed last week by media-rights advocate Reporters Without Borders, has emerged as a showcase of the debate among Internet executives, China analysts and human-rights advocates over tech firms' obligations in the world's largest communist country.

"This would be a difficult problem for virtually any company," said Jonathan Zittrain, who holds the chair in Internet governance and regulation at Oxford University. "It is one thing to give a regime the steel, another to give it bullets, and another to be the executioner--and each company must draw their own line."

At issue is not only whether U.S. businesses should disclose e-mail information, but also whether they should provide technology that helps authorities filter Web logs, chat rooms and search engines for terms such as "democracy" or "human rights."

In recent months, Microsoft and Google have come under scrutiny for agreeing to ban sensitive political talk from their Web sites in China, while Cisco Systems has been criticized for providing equipment that can automatically block certain words and pages.

The controversy is rooted in the broadening battle over China's nearly 100 million Internet users, a market second only to the United States'. U.S. businesses are moving fast. In the largest foreign investment ever in a Chinese tech company, Yahoo agreed last month to pay $1 billion for a 40-percent share of e-commerce firm Alibaba. Likewise, Google, eBay and Amazon have spent millions for shares in Chinese companies.

China poses a particular dilemma for Internet companies founded in the name of democratizing the world's access to information. They now find themselves in the awkward position of cooperating with China's network of thousands of official Web-watchers--a censorship system described by the non-profit OpenNet Initiative as the "most sophisticated effort of its kind in the world."

But tech executives echo a common argument: The benefits of expanding the Internet into China outweigh the concessions.

McKinnon argues that Yahoo! did have a choice:

Yahoo! had a choice. It chose to provide an e-mail service hosted on servers based inside China, making itself subject to Chinese legal jurisdiction. It didn't have to do that. It could have provided a service hosted offshore only. If Shi Tao's email account had been hosted on servers outside of China, Yahoo! wouldn't have been legally obligated to hand over his information.

Well, this New York Times story by David Barboza suggests that Yahoo! did tie its hands when it agreed to invest in Alibaba.com, because "as part of the deal, Yahoo even agreed to hand over its Yahoo China operations" to Alibaba.

The larger problem is that this falls under the "China contradicting the liberal paradigm" [And don't forget Singapore!!--ed.] I've said before that after weighing the scales the liberal side still wins in the long run -- but everyone should check out Bruce Bueno de Mesquita and George Down's essay "Development and Democracy" in the latest issue of Foreign Affairs. They argue that, "savvy autocrats have learned how to cut the cord between growth and freedom, enjoying the benefits of the former without the risks of the latter."

Developing....