The widely anticipated meeting convened by the House Subcommittee on Africa, Global Human Rights and International Operations followed intense public criticism of the companies after a series of incidents highlighted the ethical compromise involved in running internet businesses in China.

Court papers revealed Yahoo had a hand in the imprisonment of cyber-dissident Li Zhi, in addition to Shi Tao. Microsoft came under fire for removing a blog that Beijing deemed politically sensitive, while Google launched a censored search engine for mainland users that blocks sites containing words like 'democracy' and references to the 1989 Tiananmen Square massacre.

Cisco has long been accused of selling network equipment used by the mainland government for its so-called Policenet, an elaborate system that allegedly gives the police direct access to a citizen's internet history and e-mail.

'Can you say, in plain English, that you are ashamed of what you and the other companies have done?' California Democrat and Holocaust survivor Tom Lantos asked the companies.

It did not seem so.

But the companies' statements in recent weeks reveal a shift of strategy in what is becoming a serious public relations disaster with the potential to damage not only reputations but also share prices.

Yahoo acknowledged the 'horrible and disturbing' consequences of its actions, in contrast to previous remorseless assertions that 'to operate in China means to comply with Chinese laws'.

Google vice-president for global communications and public affairs, Elliot Schrage, said the decision to compromise on the 'most basic values and commitments as a company ... [was] not something we did enthusiastically or something we are proud of at all'.

But for all the political grandstanding and corporate grovelling last week, it remains unclear what has really changed.

Following the hearing, Mr Smith circulated draft legislation that would 'prohibit any United States business from co-operating with officials of internet-restricting countries in effecting political censorship of online content'.

The Global Online Freedom Act would prevent US companies from keeping servers containing internet search and user data in countries such as China, North Korea, Saudi Arabia and Iran, where the information is at greater risk of being subpoenaed by repressive governments, while also providing for foreign internet users victimised by US internet companies to seek punitive damages in US courts.

If passed, the legislation will have serious consequences for the firms' ability to compete in China. The prohibition on servers, for example, cuts to the heart of how the likes of Yahoo got themselves in trouble in the first place - their decision to deploy servers inside China was aimed directly at competing with domestic firms such as Baidu.com, Sohu.com and NetEase.com without being hampered by China's Great Firewall.

'Our search results were being filtered, our service was being crippled, our users were flocking to local Chinese alternatives, and, ultimately, Chinese internet users had less access to information than they would have had,' Google's Mr Schrage said.

US newspapers over the weekend gave the bill scant chance of passing in its present form, but that does not mean the problem is likely to go away soon.

Companies such as Microsoft, Google and Yahoo argue that complying with mainland laws is better for mainland internet users than boycotting the market altogether - that a slimmed down, censored service a la Google.cn is a 'lesser evil' than providing no service at all and that regulations are more likely to be relaxed with their participation than without. But as Congressman James Leach pointed out, the argument fails if the companies themselves do nothing to force principles of freedom of expression with ?Beijing.

'By pre-emptively altering their online products to conform to the predilections of Chinese censors, those companies may be diluting the liberalising pressure created by the desire of the Chinese people to use their original, unaltered products,' he said.

In reality, mainland internet users will not lose out if US firms withdraw. Their services are already matched by local companies that show no discomfort with self-censorship and government demands for information.

'We are very co-operative with the authorities,' said Alibaba.com chief executive Jack Ma, when asked about Yahoo's Shi Tao scandal.

The real reason US firms want to stay in China has little to do with exporting freedom of expression and everything to do with the country's 111 million internet users. Yet with the exception of Cisco, whose mainland revenue is estimated at US$500 million annually, the foreigners have largely struggled to gain a foothold in a market dominated by domestic players.

The fact that US firms arguably need China more than China needs them only adds to the impasse in Washington.

For all its rhetoric last week, Congress is unlikely to cede a potentially huge market to mainland companies by imposing debilitating restrictions on US firms. Equally, Google, Microsoft, Yahoo and Cisco are unlikely to pack up on their own accord, no matter the volume of protest at home.

Ironically, the helping hand may come from China itself.

Last week, a group of former senior officials joined a public declaration of support for the suspended Bingdian Weekly supplement to the China Youth Daily.

Meanwhile, 13 leading intellectuals also expressed concern about the curtailment of the basic right to freedom of speech in an open letter to President Hu Jintao.

At the same time, the State Council Information Office's Internet Affairs Bureau was telling reporters unconvincingly that 'no one in the mainland has been arrested simply because he or she said something on the internet'.

Yahoo, Google and their US rivals and partners in crime will be hoping these latest events prove more than a minor blip in China's iron rule over the media and freedom of expression.

It may be their only way off the hook at home.

War of words

• 'Yahoo said it must adhere to local laws in all countries where it operates. But my response to -that is: if the secret police a half century ago asked where Anne Frank was hiding, would the correct answer be to hand over information in order to comply with local laws? -These are not victimless crimes. We must stand with the oppressed, not the oppressors' Christopher Smith, US Congressman

• 'When China temporarily shut down access to Google.com, a significant public outcry developed, which helped lead to the eventual restoration of that search service. I worry that by providing a sanitised, censored version of Google, the company may be allowing Chinese censors to avoid the public pressure that would otherwise result from their restrictive decisions' James Leach, US Congressman

• 'While some of these firms have been operating in China for years, they have suddenly discovered the need for high-sounding documents which simultaneously affirm their respect for freedom of communication and their complete compliance with the oppressive laws in China. In the future, when you type the word 'oxymoron' into a search engine, you will find the names of Google, Microsoft,Yahoo and Cisco' Tom Lantos, US Congressman

• 'US companies in China face a choice: comply with Chinese law, or leave' Michael Callahan, Yahoo general counsel

• 'If the outcome of these hearings is to make it impossible for us to continue these services in China - either because of conditions imposed by our government, or because of further actions on the part of the Chinese government - we believe that the Chinese people would be the principal losers' Jack Krumholtz, Microsoft associate general counsel

• 'In a situation where there are only imperfect options, we think we have made a reasonable choice' Elliot Schrage, Google vice-president of global communications and public affairs

• 'Cisco has not and does not design products to accommodate political censorship. The tools built into our products that enable site filtering are the same the world over, whether sold to governments, companies or network operators' Mark Chandler Cisco Systems general counsel