Around 2,600 years ago, the early Chinese state of Ch'u began building a wall to protect itself from "barbarians." For the next thousand years, as warring Chinese states conquered each other, uniting to become a vast empire, the project continued. The wall was extended and the gaps filled in, utilizing unimaginable material and human resources, eventually creating the 4,000-mile-long Great Wall.

To this day, that Great Wall is magnificent to behold. It also represents one of the great boondoggles of history. It never really successfully kept "barbarians" out of the country. Numerous tribes, notably the Mongols who conquered all of China, overcame the Wall, either by going over it at times of weakness in the empire, going through it peacefully to trade and gaining a foothold in the empire or simply by going around it.

The example of the Great Wall is worth keeping in mind when considering Chinese leaders' recent efforts to control the explosive growth of the Internet. Feeling threatened by the potential the Internet holds to spread "subversive" ideas, many Chinese officials are trying to build a Great Wall around it. And while recent events dinged shares of the benchmark Chinese Internet company,

Chinadotcom

(CHINA)

(formerly

China.com) and triggered fears that the public offerings of other Internet companies might be delayed, investors would be wise to consider the ultimate failure of the Great Wall when contemplating their e-holdings in the Middle Kingdom.

Last week, China's

State Bureau of Secrecy

announced that all companies in the country had to register any software they use that contains encryption capability. And the requirement that the companies list the serial numbers of such software as well as the employees that use it has set off fears that the authorities could monitor use of the Internet. The government set an impossible-to-meet deadline of last Monday, Jan. 31. It also restated that it is illegal to disseminate "state secrets" across the Internet.

No doubt an announcement the week before that Internet usage in China had doubled in the last six months of 1999 set off some alarm bells.

No surprise, the new Internet restrictions affected some stocks and sparked outrage by commentators in the West. Chinadotcom is down 26% from a late December high. (Nevertheless, it still has doubled since last November.) Mutual funds investing in China have been lackluster the last week; these include

(FHKCX) - Get Report

Fidelity Hong Kong and China Fund and

(CNTAX)

Liberty Newport Tiger, both of which are down slightly as investors worry that attempts to control the Internet may lead even to interventions in the economy. Questions were raised about how this might affect the public offerings of Chinese Internet companies

Sina.com

and

Netease.com

, rival portals to Chinadotcom, and e-commerce company

8848.net

; all three hope to list this year.

However, while the government's actions are outrageous, investors should muster their patience and ride this one out. The Chinese government may be panicking about the Internet; investors should not panic about the government's reaction to it.

The events last week were the perfect example of how China, one of the world's most totalitarian countries, has, in fact, a weak central government. It is a country with little rule of law. Bureaucracies can make the law as they struggle for power and try to put their stamp on issues before the central government can. These bureaucratic struggles will intensify as China opens to foreign competition, especially after entering the

World Trade Organization

. In the U.S., the fight over China's accession to the WTO will pit businesses against labor or human rights groups. In China, the fight will pit various branches of the government against each other.

China's leaders, for the most part, are aware that China will not benefit from seriously cracking down on foreign investors. They will rein in the bureaucrats who try to go too far. Experienced investors in China understand this and are keeping their eye on the immense potential of China's market for e-commerce. Interestingly, many companies did not even bother to try to comply with the government's Monday deadline, since they knew it would change.

Bear Stearns

and

Lehman

, the lead underwriter for Chinadotcom's initial public offering, and

Goldman Sachs

all rate Chinadotcom a buy right now, and observers say it's very likely its current dip will soon be reversed.

The Internet will bring substantial change to China, perhaps even revolutionary. Factions in the government will fight that change tooth and nail. But remember the Great Wall. The barbarians will get through sooner or later.

David Kurapka's Trade Winds column appears Wednesdays and Fridays on TSC. In keeping with TSC's editorial policy, he does not own shares in any companies or mutual funds mentioned in this column. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

dkurapka@thestreet.com.