How to convince Chinese government cyber-snoops to keep their mitts off their nation's Internet?

Beijing entrepreneur and media diva Hung Huang - who's been dubbed the Oprah of China - found a persuasive argument in comments of Morgan Stanley tech analyst Mary Meeker. In a panel discussion of the explosive growth of China's Internet, Meeker reckoned that China, with 111 million Internet users and 393 million mobile phone users, has already overtaken the US as the largest consumer of telecommunications products and services.

And yet, Meeker noted, the market performance of Chinese IT companies lags far behind their potential: total market capitalization of Chinese Internet companies amounts to less than $15 billion - half the market cap of Yahoo Japan.

Why the mismatch? The key reason, says Meeker, is investor uncertainty about state censorship and over-regulation.

"If I were China"s Information Minister," said Hung, "I'd be a lot more impressed by claims that Chinese companies are undervalued and that censorship hurts economic competitiveness than I would by Western complaints about human rights."

Hung promised to post that and other observations from the morning's panel on her own blog, which is one of the most the most popular in China.

"I want to do it as an experiment," she said. "Let's see if it gets censored."

Justin Fox has already filled you in on the ongoing Brainstorm debate about the quality of U.S. mobile networks. (Thomas Hazlett thinks we're doing just fine, others wonder why we lag Europe and Korea.) That debate - and a continuing discussion about the underwhelming broadband penetration rate in the U.S. - raged on at the Connected Without Wires panel.

One audience member complained that he couldn't complete his 20-minute drive to work without multiple dropped calls. Chris Sacca of Google, no appologist for the big phone companies, was nevertheless sympathetic to their situations. He's the guy working on trying to develop a free wi-fi service in San Francisco, and he recalled that one San Francisco official actually was proud of the fact that the city hadn't authorized new cell sites in recent years: No wonder our intrepid Brainstormer's service suffered.

Somehow this discussion about wireless moved into a conversation about 'Net Neutrality - legislation that Google and others are pushing to ensure that broadband providers like AT&T, Verizon and Comcast don't charge extra fees to content providers to ensure, say, faster delivery of their content to end-users. Many people feel that the heart of the issue is that the telcos in particular are looking for ways to recoup the billions of dollars they are spending to deploy fiber to neighborhoods and homes for ultra high-speed Internet - the kind of stuff you can run video over. "AT&T says it spends hundreds of millions of dollars to deliver my service to consumers," fumed Sacca. "Well, I spend hundreds of millions of dollars, too."

Alas, we at Brainstorm didn't come up with a solution to these problems. But the 'Net Neutrality issue continues to be hot in Washington, and we'll be watching to see how it plays out.

During a discussion on energy resources this afternoon, technology-guy-turned-biofuel-backer Vinod Khosla offered a deal to Royal Dutch Shell CEO Jeroen van der Veer. Khosla said he'd be willing to sign a long-term fixed-price contract guaranteeing to supply Shell with ethanol. The price would be set to allow Shell to retail the stuff for $1.99 a gallon at the pump and make a profit. Or something like that--I was busy moderating the discussion, so I didn't take notes.

Afterwards I saw Van der Veer and Khosla sitting in the shade of a tree on the Aspen Institute grounds, deep in discussion. So if anything comes of this, you read it here first.

Despite a somewhat spotty wireless signal, the blogosphere is thriving here at Brainstorm. (Says blog pioneer Dan Gillmor, "The next conference I go to that has a consistent WiFi signal will be my first.") For your convenience, we offer a roundup of the blog activity, in no particular order:

• Steve Jurvetson's The J Curve
• Dan Gillmor's Center for Citizen Citizen Media: Blog
• Rebecca MacKinnon's RConversation
• Joi Ito
• Ross Mayfield's Blog
• Gary Bolles
• Diego Rodriguez' metacool
• Chris Sacca's What is left?...


• ...And Fred Wilson, of A VC is here blogging choice quotes entirely via Blackberry. Slick, huh?

Who are we missing? Please advise.

It was 7:30AM, a Breakfast Roundtable entitled "Relations Between the Arab and Western Worlds--Can they improve?" The panel was stacked with big names (Albright and Queen Noor among others) and so the room was filled to the brim. The Grand Mufti of Bosnia sat on the periphery. A few chairs down, separated by the door, was Sandra Day O'Connor.

The Mufti took out his card and a piece of paper and passed a note down the line to the Supreme. It said, "I wish I had a copy of the United States Constitution." Sandra Day received the note and smiled at the Mufti, who bowed slightly. Then she reached into her bag and pulled out her pocket copy of the Constitution (and the Declaration of Independence.) She wrote a note on it to the Grand Mufti and passed it back through the crowd.

Yunghi Kim, our intrepid photographer, has been up since dawn tracking Brainstormers. We offer you some candid shots, and propose an experiment in collective intelligence for those in Aspen, namely caption writing. Here's how it works: Following are some shots from yesterday evening and this morning (and there will be more to come.) Were you at the meeting? Do you know the subject? Add your insights simply by adding a comment.

Photo by Yunghi Kim

My panel, concluded earlier this morning, was a too-fast romp through some real, practical things we all can do to reduce global warming. I already published a preview earlier this week on what some businesses are doing about global warming. The big theme from today's panel was carbon neutrality - the concept that every person, government and business can be carbon neutral by making sure that for every action contributing carbon dioxide to the atmosphere there is an offsetting reaction to neutralize it. My takeaway: If you want to be carbon neutral you literally can write a check to purchase offsets to your own waste. It sounds a little kooky, but this is totally worth exploring. We filled up an imaginary white board of ideas during this panel. Watch Fortune.com for an entire Plugged In column from me on the subject.

Julie Schlosser hosted a kick-ass breakfast panel this morning about our co-called sped-up youth, in other words, how kids are living faster lives than we oldsters did as a result of their use of the Internet. We actually had some college- and high-school-age participants. They agree that their lives are different than the previous generation's. They use IM, for example, to keep up constantly with a wide group of friends in a way that the pre-IM generation couldn't. One student challenged Chris DeWolfe, CEO of MySpace, suggesting that News Corp. wants to control the message everyone hears. DeWolfe kidded that Rupert Murdoch was listening to the conversation, then insisted that News hadn't changed MySpace, a debateable point. My panel tomorrow morning, "Life on Digital Steroids," should be a continuation of this conversation.

At a panel discussion last night in which the problems of the Middle East featured largely, journalist David Ignatius noted that he is always more optimistic when he is in the region rather than outside it talking. As an example of the cultural ferment that can be seen, he noted that on a recent trip to Lebanon, the hottest ticket was an Arabic version of............The Vagina Monologues. At the same time, 50-Cent, the American rapper, was also sold out.

Elias Antonio Saca, President of El Salvador, wants to do business. That was more or less the gist of his 20 minute speech, in Spanish. "Things have changed since we signed the peace accord 14 years ago," he said. "We no longer talk about rifles and revolutions. We talk about Internet revolutions." Saca noted that Dell has moved into the country, hiring 1,000 customer service agents, and launching a manufacturing operation. And he wants to do more, which is why he's a staunch defender of the newly signed CAFTA.

"CAFTA is going to add 1.6% to annual GDP," he said. "It has already allowed us to attract $200 million in foreign investment." And all this, of course, means new jobs. President Saca ended with an invitation to Brainstormers. "We want you as leaders of your companies to participate in our project. I invite you to participate in making El Salvador [an even greater country.]"

A lively (for 7:30 a.m.) conversation took place during this morning's panel discussion on entertainment in the digital age. FORTUNE's Pattie Sellers immediately put everyone on their toes by asking the panel members to discuss the dumbest (as well as smartest) decision they've made in the past few years.

CBS' David Poltrack was unlucky enough to start things off. At first, he declined to say what his company's dumbest move was. "I'm not going to tell this group. You do know Leslie Moonves?" he joked, referring to CBS' CEO. But he finally relented and said that CBS' recent attempt to create a reality version of ABC's hit "Desperate Housewives", the ill-fated "Tuesday Night Book Club" was CBS' most recent example of a dumb move. The show attracted a lot of buzz when it first aired a few weeks ago but subsequently lost a large portion of its first episode's viewers and has since been shelved.

Movie and TV producer Brian Grazer said his best and worst decision was to produce the blockbuster film adaptation of "The Da Vinci Code." He said he didn't expect there to be such a big backlash to the movie's controversial content.

Ken Miller of Lehman Brothers candidly admitted that he, like many others, fell for the Internet hype back in the late 1990s and 2000. He said he no longer trusts "BS metrics" like page views and unique visitors, which he says have no real relation to cash flow and profits.

Former Disney CEO and chairman Michael Eisner had the audience rolling with his answer. He said "it was hard to count all the dumb moves" he made before zeroing on one high-profile blunder: misjudging personnel.

Activision CEO Robert Kotick joked that his smartest move was deciding to not sell his video game publishing firm to Eisner when he was still at Disney. That comment was also met with a few chuckles.

A collection of media heavyweights (and middleweights) gathered at Brainstorm this morning to talk about entertainment in the Internet age, and not surprisingly, the discussion turned to protecting the rights -and bank accounts - of content creators. When a company like News Corp. or Disney takes a hit program and repackages it or repurposes it for an iPod or a cell phone, how do the creative types get theirs?

William Morris Agency CEO Jim Wiatt illustrated the problem thusly: Shortly after Disney CEO Bob Iger announced plans to make the television show "Lost" available for viewing on iPods, Wiatt called "Lost" creator J.J. Abrams (a William Morris client, natch) and asked if he had any idea the venture was in the works. Abrams said no, so Wiatt says he then called Iger and asked: "How is J.J. going to get paid?"

Iger, according to Wiatt, said, "I don't know." Wiatt paused and looked at former Disney CEO Michael Eisner, who was sitting across the room and added: "If I had asked Michael he probably would have said: "He's not."

In a previous post, I told of how Thomas Hazlett of George Mason University defended the U.S. wireless telephony system as globally competitive. Several of those in earshot were incredulous at this assertion, given how spotty cell-phone service is here compared with in Europe, Asia, Africa, the Middle East, etc. But time ran out on the discussion and Hazlett never had time to explain himself.

I tracked him down last night, and here are his three reasons why we should be happy with our RAZRs:

1) U.S. wireless rates are among the lowest in the world.
2) U.S. wireless usage (minutes, not the percentage of the population with phones) is among the highest in the world.
3) U.S. technologies (mainly Qualcomm's CDMA) are driving the global wireless business.

In this morning's breakfast discussion on U.S. indebtedness (where economist David Li also made some interesting remarks), former Goldman Sachs Asia vice chairman Kenneth Courtis offered this rhetorical question:

"When the current administration leaves office, the U.S. will have an external debt of $6.5 trillion," Courtis said. "Is anyone in this room naive enough to believe the U.S. will ever pay that back?"

No one spoke up.

Their companies may be locked in daily combat, but this morning they chatted amiably with David Kirkpatrick. The panel? Ray Ozzie (Microsoft), Pierre Omidyar (founder eBay, now venture capitalist), Marissa Mayer (Google), and Martin Sorrell (chief of ad giant WPP.) Gary Bolles has summarized the discussion admirably.

Harvard-trained economist David Li, who runs the new Center for China in the World Economy at Tsinghua University, has already emerged as one of the more interesting people at this conference, with two mentions in this blog already.

This morning, at a breakfast discussion I moderated on U.S. indebtedness to Japan, China, and the rest of the world, he broached a fascinating suggestion. He and others in China, he said, have recently been pushing the government to invest some of its massive foreign exchange reserves in "well-managed, resource-deep companies in order to hedge the risk of an increase in commodity prices." That is, it could buy a 5% stake in, say, BP or Exxon Mobil. Li says he broached this idea with BP chief John Browne, who responded, "Why not 25%?"

Following a few more highlights from last night's dinner panel hosted by Madeleine Albright's (see "Eddie Lampert asks a question" below for more....)

The scene: Former Secretary Albright sits to the far left on stage, a large presence, but significantly smaller, physically, than than the Grand Mufti of Bosni and Queen Noor to her left. The Mufti owes his stature in part to a bright white cylindrical hat, while Queen Noor is simply sporting the sort of lofty hairstyle that only a Queen could get away with, and she does.

ALBRIGHT opens with strong point of view that wins applause. "I believe the United States needs to have a moral foreign policy. Now, that's a little different than a moralistic foreign policy where we're telling everyone else what they should believe."

Eventually, she cedes the floor to the Queen Noor, and then the Grand Mufti who takes the "corporate" group as far back as 1289 -- when the last Caliph was killed in Bagdhad -- in laying out his analysis of the various paths that Islam has tried in its attempts to modernize. The Mufti is clearly a charmer, confessing his ignorance of business repeatedly: "The corporate, you have surplus in your material goods. We have surplus in our spiritual goods. We should do a trade."

IGNATIUS follows the Grand Mufti and gets right to the point: "I saw quite a few Hollywood people in the audience, and I'm thinking someone ought to sign the Mufti up for a TV show."

Eventually, it's time for the Q&A. (The main course has yet to arrive, but the clatter from dishes being served is rising.) Before Eddie asks his big question, Narayana Murthy gets in a good one. Murthy is the Chairman and "Chief Mentor" (read founder) of Infosys, the giant Indian tech outfit. Murthy wonders why he has not "come across a single Indian Muslim" involved in global terrorism of the sort committed by al Queda. Queen Noor's answer make very good sense: "India is a live democracy -- one that is allowing political space for dissidents." This is not the case in the Arab world, she says.

Photo by Yunghi Kim

During last night's big discussion on religion and global politics, led by former Secretary of State Madeleine Albright, hedge fund superstar (and Sears boss) Eddie Lampert got up to ask a question.

All the panelists (Albright, Queen Noor of Jordan, Kenneth Roth of Human Rights Watch, David Ignatius of The Washington Post, and Dr. Mustafa Ceric, the Grand Mufti of Bosnia) had been more or less critical of the Bush Administration's approach to foreign policy, especially in the Middle East. Lampert pointed out that a similarly elite panel in the 1980s would have said the same negative things about Ronald Reagan, yet Reagan's foreign policy approach has since gone down in history as a great success.

"What would have to happen," Lampert asked the panel, "to convince you that you were wrong?"

Albright had a pretty straightforward answer. "The situation in Iraq would have to stabilize to the point that it is seen as a great success." Roth of Human Rights Watch offered a response that was less on-topic but certainly interesting: "The U.S. has to live by its ideals so we can promote democracy and not be embarrassed by it."

Feeling intellectually inferior at Brainstorm is nothing new for me: This conference consistently pulls together some of the smartest, most articulate, most impassioned people on the planet for a 48-hour gabfest that leaves me feeling both energized and exhausted. (I also go home with a really long reading list.) But at last night's opening dinner, I found myself feeling upstaged by a bunch of kids in their teens and early twenties when conference organizer David Kirkpatrick introduced five student fellows who are attending Brainstorm with the assistance of the Salesforce Foundation.

In true Brainstorm tradition, they are doing smart, important work - some at the ripe old age of 18. One young woman is pursuing human rights work from a legal perspective. another is working to improve the lives of indigenous people. One young man has been a spokesman for Israeli-Palestinian issues since he was 13 years old. And another fellow is using computer programming skills to help a non profit track human rights voilations. In all, an utterly impressive young group that reinforced that good old Brainstorm feeling of inadequacy. My only solace: I was sitting at an adjacent table at dinner, and I'm happy to report that I do have slightly better table manners!

An awkward moment at the discussion about the competitiveness of the U.S. economy: Professor Thomas Hazlett of George Mason (how about the Colonials' Final Four run?) was talking about the old Microsoft antitrust case and that how he never could understand why Microsoft's lawyers could not make a stronger argument that Microsoft was a company that was challenged every day by new competitors. It turns out that someone from Microsoft was in the room. "I'll pass on that to Bill for you," shot back Gary Flake, a technical fellow at Microsoft.

Later on during the question and answer session, Flake took issue with some of Hazlett's comments about the state of the telecom industry in the U.S., saying that it was "shameful" how far behind the U.S. lagged Asia, Europe and other regions of the world in wireless telecommunications.

But Hazlett cast some of the blame at Microsoft, arguing that "even forward thinking companies like Microsoft are on the wrong side of lobbying," regarding efforts to get the government to invest more in tech and telecom infrastructure.