BEIJING — Sell e-mail addresses to foreigners, go to jail. That's the message the Chinese government sent last month when it sentenced a man to two years in prison for passing along 30,000 e-mail addresses to a Washington-based, pro-democracy Chinese language Web zine. In his defense, Lin Hai said he just wanted to make a buck.   Lin isn't alone. With the number of Chinese Web users at 2 million and doubling every six months, a crop of home-grown entrepreneurs has sprung up, hoping to capitalize on economic reforms to build local new media empires. With 2 billion eyeballs at stake, major U.S. companies have also begun to leap into the fray. But they face some interesting challenges from Chinese officialdom.   Among the larger shifts affecting Chinese policy at this moment is that officials are starting to view the Internet not as a telecommunications entity but as a media entity. With that shift in viewpoint comes a need to exercise greater control. There's nothing more threatening to a withering totalitarian state than a footloose press.   At the same time, the Chinese government recognizes the potential economic benefits of the Web and has been actively supporting the construction of an Internet backbone. Eighty percent of users currently log on through state-run Internet Service Providers.   Attempting to balance the interests of fledgling free enterprisers with those of the state security apparatus, China has tended to err on the side of caution when it comes to such issues as freedom of speech on the Internet. Pro-democracy sites based outside of China are sometimes blocked, chat rooms are monitored and e-mail activities scrutinized.   In the wake of Lin's sentencing and protests that it sparked, the government issued new restrictions in January on Internet cafes or Internet 'bars.' Henceforth, all Internet cafes, which have been a haven for those Chinese without computers or desiring greater anonymity, must be licensed by the police. (By one estimate, somewhere in the neighborhood of 1,000 Internet cafes have sprung up throughout China in the last three years.)   Earlier security mandates required that ISP users sign pledges that they would not use the Internet for anti-government activities. Emerging portal sites have hired monitors to police chat room traffic so they don't run afoul of state security censors, believed to pop in unannounced.   While laws seem to be enforced haphazardly, the consequences for violating them can be severe. In addition to Lin's case, dissident Xu Wenli and three others were arrested last November for attempting to form a pro-democracy party. Among the charges were that they had used the Internet to disseminate their bylaws. For his simple act of selling an e-mail address list, Lin was charged with 'inciting the overthrow of state power.'   U.S. companies doing business with China could potentially be a force for positive change -- and for the promotion of the free speech values upon which the Internet was founded -- but so far none seems to want to take on the role of moral compass. In fact, most of them have bent over backwards to appease the Chinese government rather than risk losing out on a potentially lucrative market.   Several of Silicon Valley's finest have leapt into bed with Xinhua, the Chinese government's official news agency. Considered by many to be a propaganda machine for the government, Xinhua is the majority partner of the Hong Kong-based China Internet Corp. Among CIC's other strategic partners are Netscape and AOL. And Sun has supplied the computers for the CIC Internet backbone.   Other major Internet portals are also jumping into the potentially vast Mainland market. Yahoo last year launched Yahoo Chinese, and both Infoseek and Lycos were seeking China- or Hong Kong-based partners as well. Staunch critics of any U.S. efforts to control the Internet or e-commerce back home, these companies appear willing to jump through any hoops necessary to land solidly on Middle Kingdom turf.   CIC recently touted a 'historic' deal with a Taiwanese news agency to provide information to mainland consumers. On the surface it seemed like a great leap forward in China-Taiwan relations. However, the deal is limited to inoffensive financial news. Political or cultural news will not make it past the curtain.   One interesting development that is being closely watched, at least in Asia, involves Cupertino-based Sinanet.com, an information site started by Stanford students in the wake of Tiananmen. In a few years, it grew to become the most popular Chinese-language site for so-called 'off-shore' Chinese, those living in the United States, Taiwan, Singapore and Hong Kong, providing e-commerce services and searches (in partnership with Excite), as well as news and information, to millions of users.   Just before Christmas, the company announced its merger with Stone Rich Sight, an emerging, private Beijing-based Internet portal company. Almost immediately, company officials had a media crisis on their hands. The Taiwanese media saw it as an attempt by China to take over a popular pro-Taiwan Web service. Sinanet found themselves with no fewer than seven camera crews parked on their doorstep.   Sinanet's solution for now is to create separate Web sites that can be viewed in each country, Taiwan, Singapore, Mainland China, etc. Company officials, however, admit that the potential market in mainland China dwarfs all other 'off-shore' Chinese markets combined. And it is China that must get the priority. If the Chinese government were to insist a year or two from now that Sinanet shut down its operations in the rest of the world as a condition of operating in China, company officials would be hard-pressed to say no.   For their part, Chinese Internet entrepreneurs insist that they have to remain pro-government just to survive. They argue that regardless of how much they bow before government restrictions, their very existence is providing a tremendous public service. Indeed, the issue is not black and white. Despite government restrictions, the fact remains that any Chinese citizen who logs on in an Internet cafe can have access to most Web sites around the world, from pro-Taiwan Web zines to pornography sites. So even those companies who kowtow to government authorities are providing an inherently democratizing service to their users.   What remains unknown, however, is how chilling an effect the new restrictions will have on the average Net surfer. Will cafe users be afraid to sneak a peek at forbidden sites because of fear their meanderings might be traced retroactively? Will the mere threat of e-mail monitoring stymie cross-cultural exchange of information? Will chat rooms confine themselves to safe discussions of the weather and stock market reports?   Although China's restrictive policies may concern human rights activists and free speech advocates in the West, the average citizen in China appears less troubled. Surveys show that only a small minority believes that political freedom should come ahead of economic prosperity. They take restrictions in stride. Free speech, they assume, on the Internet and elsewhere, will come naturally once China has achieved a higher per capita income.