U.S. Congressional hearings this week are highlighting the dilemma that U.S. Internet firms are facing with censorship in China. The problem is often one of how to secure a stake in China's growing market while adhering to free speech principles.

Chinese Internet surfers play online games at computer stations in an Internet cafe in Beijing

With the number of Chinese Internet users soaring rapidly, analysts say U.S. firms cannot afford to stay out of the Chinese market.

James McGregor is an international business consultant and author of a book called "One Billion Customers" that examines China's emergence as a major and aggressive player in the global economy.

"There's 110 million internet users in China. There's 200 million in the United States. China will surpass the United States in Internet users in probably three or four years, if even that long," said McGregor. "If they're not in China, you have Chinese companies that hijack their business models and the Internet is global so what do you do?"

McGregor and others say the challenge remains for firms to find a way to be in the Chinese market without compromising the principles of free speech - the way critics say Internet search engine Yahoo has done. The American firm has drawn fire for - on more than one occasion - handing over information to the Chinese authorities that led to the imprisonment of people who posted messages the Communist authorities did not like.

Julien Pain - head of Internet research at Reporters Without Borders in Paris - says he hopes the information obtained from U.S. congressional hearings in Washington this week will raise consciousness among the bosses at Yahoo, investors, and above all, among users.

"I don't think that Yahoo can hide anymore behind the fact that they didn't know what they were doing - that they just received this kind of unspecified request and they thought that they were handing over information about ordinary criminals. I think this argument no longer holds wate," said Pain.

Left to right:  Mark Chandler (Cisco Systems), Elliot Schrage (Google), Jack Krumholtz (Microsoft Corporation) ,and Michael Callahan (Yahoo!) appear before joint hearing on Capitol Hill, Feb. 15, 2006

Yahoo executives Wednesday in Washington told U.S. lawmakers they deplore punishment of dissidents for expressing their opinion. But they pointed out they must also comply with China's information laws in order to do business.

Other companies like Google and Microsoft have acknowledged they filter access to information in China. They block words that the Chinese government deems politically sensitive. But they say they clearly let Chinese users know which searches are denied by government censors.

Google also chose to not market its e-mail services, blogsites, and chatrooms in China to avoid providing a venue for sensitive postings.

Google says it is not happy with this "imperfect" choice but believes it does more to promote access to information by accepting some restrictions in this country of 1.3 billion people.

The argument over censorship in China has also highlighted the role of foreign journalists who work for news organizations that are trying to firm up their presence in China or not be expelled.

Meanwhile, China is defending its Internet policy. State media on Wednesday quoted Liu Zhengrong, an official with the Chinese cabinet's Internet Affairs Bureau, as admitting the government blocks certain websites that he said contain "harmful" contents. But Liu also said China's government has arrested no one for posting their thoughts on the web.

Reporters Without Borders called the statement a "lie." It says its media advocacy group is currently pushing the cases of at least 55 Chinese people who are in prison on Internet-related offenses.