Which country has the most Internet users? No, it is not the United States, as cyber connected as we are in this country. The correct answer is China, with 446 million users by the end of 2010, according to “Freedom on the Net: A Global Assessment of Internet and Digital Media,” recently published by Freedom House.

At the same time, China also has the highest number of imprisoned cyber dissidents of any country in the world and one of the most restrictive Internet environments, “characterized by a sophisticated, multilayered control apparatus,” in the words of the human rights organization.

In 2010, for instance, blocks on Facebook and Twitter became permanent. Average users are isolated from the international social media and exposed to a manipulated online information landscape controlled by the Chinese government. China’s Freedom on the Net score declined from 79 in 2009 to 83 in 2011–with 100 being the worst possible rating.

Yet, bad as the situation is for China’s online users, it is about to get worse. According to The New York Times, “a powerful arm of China’s government said Wednesday that it had created a new central agency to regulate every corner of the nation’s vast Internet community, a move that appeared to complement a continuing crackdown on political dissidents and other social critics.”

The new agency, whose Orwellian name is the State Internet Information Office, would potentially take over from the 14 different government offices that already claim the right to interfere with the operation of cyberspace. China’s State Council Information Office, whose duties of course include censorship, said it would transfer its staff of Internet regulators to the new agency, which will direct “online content management”; supervise online gaming, video, and publications; promote major news Web sites; and oversee online government propaganda.

In other words, the State Internet Information Office will be a one-stop shop for all the many functions of the Internet that have potential for political activism and individual expression. The new agency will also have the power to punish violators of online content rules, and it will have the power to regulate the huge telecommunications companies that provide access to the Internet.

The Chinese State Council’s move to tighten controls of cyberspace comes at a time when the U.S. government is hobbling along in its efforts to catch up. In its 2012 budget request, for instance, the Broadcasting Board of Governors (BBG) has proposed restructuring broadcasting to China, shifting “VOA Mandarin from traditional radio and television broadcasting from a web only platform utilizing new media technologies.” Anyone who can read The New York Times can see why this idea is a non-starter—and why it completely plays into the hands of the Chinese state censors.

Meanwhile, back at the U.S. State Department, the news was out that State will inform Congress this week that it has allocated all of the $50 million appropriated so far for Internet freedom efforts around the world. The fact that this has taken over three years does not exactly suggest lightning speed urgency—even as cyber activists from China to the Middle East have been struggling to stay on the Web. “There’s no question that the ability of young activists in Egypt or Tunisia to organize themselves was dependent on not sitting in a coffee shop or hotel somewhere, but using the Internet and having access to each other online,” Michael Posner, Assistant Secretary of State for Democracy, Human Rights, and Labor said in an interview with National Journal. Posner also correctly stated that in this day and age, the Internet is one of the keys to a functional democracy.

State was recently given another $20 million by Congress to pursue Internet circumvention technology (with the BBG being given another $10 million). Whether the funding will have the desired effect remains to be seen, but compared to the magnitude of the efforts made by China to keep the Internet under control, the U.S. government is clearly playing catch up in a deadly serious game.