By Yew Lun Tian and Casey Hall
BEIJING/SHANGHAI (Reuters) -One&nbsp;joke&nbsp;by a Chinese comedian about the nation's military has spurred online&nbsp;uproar, a $2 million fine, a police probe, a sweep of cancelled shows and&nbsp;fears for the survival of Chinese&nbsp;stand-up&nbsp;comedy, a rare refuge for somewhat free speech.
The furore over Li Haoshi's wisecrack in Beijing last weekend marks the biggest scandal yet for a form of entertainment that, despite&nbsp;China's&nbsp;tightening censorship regime, had managed to gain popularity with performances in small groups and material that managed to just toe the line.
"Stand-up&nbsp;comedy&nbsp;has been the last bastion in which people ... can still enjoy entertaining commentary about public life," said Beijing-based independent political analyst Wu Qiang. "After this, the space for&nbsp;stand-up&nbsp;comedy&nbsp;and public expression in general will inevitably keep shrinking."
The State Council's information office, which handles media queries on behalf of the government, did not respond to Reuters request for comment.
China's&nbsp;comedy&nbsp;scene rose quickly during the COVID-19 pandemic as people spent more time indoors watching viral streamed&nbsp;comedy&nbsp;shows. The most popular were produced by Xiaoguo Culture Media Co, the firm at the centre of the current&nbsp;uproar.
Following reports that these broadcasts were increasingly subject to censorship, especially when it came to sensitive subjects such as Shanghai's lockdown, offline shows proliferated, in part because of a perception that comedians were freer to speak in front of small groups than vast broadcast audiences.
"I&nbsp;fear&nbsp;this could spell a&nbsp;clampdown&nbsp;on the whole industry," said a U.S.-based Chinese comedian who uses the stage name Kite. She declined to give her real name,&nbsp;fearing repercussions.
"Stand-up&nbsp;comedy&nbsp;allows us to find small happiness amidst suffering. This is why I think we should try to do something to resist the&nbsp;clampdown. If we don't do anything, we won't even have the freedom to&nbsp;joke&nbsp;in future," she said.
A Beijing-based comedian, speaking on condition of anonymity for&nbsp;fear&nbsp;of repercussions, said a number of their shows had been cancelled in the wake of the incident and that they&nbsp;feared for the future of the&nbsp;stand-up&nbsp;scene.
Audiences at&nbsp;comedy&nbsp;events in China are often asked not to record&nbsp;jokes or performances, in part because of an awareness that a short clip can be quickly taken out of context on Chinese social media.
Li, whose stage name was House, nevertheless went viral when an audience member posted a description of a&nbsp;joke&nbsp;he had made during a set on May 13, suggesting it was demeaning to&nbsp;China's&nbsp;People's Liberation Army (PLA).
Beijing police said on their Weibo social media account that they were investigating Li.
Beijing&rsquo;s Culture and Tourism Bureau slapped a 14.7 million yuan ($2.13 million) fine on Xiaoguo and barred the company from hosting performances in Beijing and Shanghai, saying it would "never allow any company or individual use the Chinese capital as a stage to wantonly slander the glorious image of the PLA".
Other&nbsp;comedy&nbsp;companies, including Beijing's Danliren Culture Media, have cleared their performance schedules without explanation.
A staffer at Danlinren told Reuters on Friday she was not aware why the company had cancelled its&nbsp;comedy&nbsp;shows in Beijing. Xiaoguo on Wednesday blamed the incident on "major loopholes in management" and terminated its contract with Li.
Li, who has apologised for the&nbsp;joke, did not respond to Reuters requests for comment.
China's&nbsp;leadership "fed an atmosphere of paranoia and&nbsp;fear&nbsp;over national security risks, defined so expansively that anything can be an attack," said David Bandurski, director of the China Media Project, a U.S.-based research group.
"A punchline is treated with the same alarm as a real assault on the nation."
($1 = 6.9121 Chinese yuan renminbi)
(Reporting by Casey Hall in Shanghai and Yew Lun Tian in Beijing; Additional reporting by Albee Zhang in Beijing; Editing by)

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No joke: China's backlash against stand-up stirs fear of comedy clampdown