According to the pressure group, Reporters Without Borders, Yahoo's Hong Kong office supplied Chinese investigators with information allowing them to track an e-mail from the computer of journalist Shi Tao who was found guilty of providing state secrets to foreigners and jailed for 10 years. The alleged secrets passed on by Shi consisted of information on media restrictions imposed by Beijing.

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Yahoo has been among the more enthusiastic proponents of the view that the Internet has fostered a new era of communication. As a guardian of the gateway to this world of free communication, Yahoo has claimed its impartiality and commitment to the free flow of information.

If it is true that Yahoo has now become a police informant (a claim the company declines to deny) its credibility is very much on the line. But, presumably Yahoo thinks this is worthwhile as it salivates over the prospect of securing a share of China's relatively undeveloped Internet market. Last month it paid US$1 billion (HK$7.8 billion) for a 40 percent stake in Alibaba.com, China's biggest online commerce firm, signaling a determination to expand its Chinese activities.

Other dotcom companies, notably Google and MSN, a Microsoft subsidiary, are also determined to ensure their presence in this massive potential market. These two companies have prevented Chinese users from including items likely to offend Beijing. The use of words such as "democracy," which are likely to give offence, can be expunged from Weblogs or other content posted on sites which pass through gateways they control.

The offensive aroma of hypocrisy surrounds these companies as they proclaim their enthusiasm for contributing to a new world communication order while cozying up to the demands of the world's largest authoritarian regime. Their defense, as ever, comes in the form of a plaintive cry of "realism." Realism, in this instance meaning that if they want to do business in China, they need to play by the rules of the Chinese game.

Playing by the rules is one thing, but supplying information to the state which leads to a lengthy prison sentence for a journalist is quite another. Yahoo knows full well that what China classes as state secrets can be more or less anything the state decides has to be kept under wraps, regardless of whether it has the slightest impact on China's security. Yet it appears that a company nurtured in "the land of the free" is prepared to sacrifice a hapless journalist if that's what it takes to make a buck.

By indulging in this cynical relationship with the Chinese government Yahoo is perhaps doing little more than other large corporations mesmerized by the prospects of the world's largest market. It is quite extraordinary how business people, who are otherwise shrewd and sensible in their dealings with foreign governments, become putty in the hands of the Chinese authorities.

My favorite illustration of this was provided by John Phelan, a former New York Stock Exchange chairman when he was invited to China in November 1996. At a meeting with Deng Xiaoping he said: "I would hope that the US business community would win a gold medal in terms of investment in China in the future."

Deng, who quickly had the measure of the man, asked him whether he knew why he had been invited. Phelan groped for a reply but the former paramount Chinese leader helped him out. "The main purpose is to exploit you," he said. "Well, it's a great honor to be exploited," Phelan replied.

Is it possible to imagine such an absurd exchange between, say the British prime minister and the leader of a major US corporation, after all investments between these two countries greatly overshadow anything seen in China? But of course these investments are pursued on normal business lines with a stern eye on the bottom line and no more than a cursory glance at politics.

In China things are different, not least because despite the assertions that a market economy is emerging, the Chinese state remains the crucial player in the economy and those wishing to do business must struggle their way through the mass of political bureaucracy.

Somehow Chinese authorities have persuaded foreign investors that only they can play hard ball in this game of luring and offering investments. But China's need for foreign investment and the benefits of foreign technology and ideas is profound and so the scope for a tougher game on the foreigners' side clearly exists.

Yahoo appears to doubt this and believes that it will prosper by sacrificing small fry like Shi Tao. This belief is not only morally flawed but, in terms of business practice, is unlikely to produce favorable results in the long term.