rss feedGoogle, China and the Year of the Tiger
There is a real – and sad – possibility that U.S.-China relations this year might become tenser.
Tensions have been lurking about for years on a variety of issues, including trade and currency valuation. The Google news this week – announcing that the company wanted an unfiltered search engine in China and sophisticated cyber attacks against Gmail – marks the first cork to pop for 2010.
For the most part, China - including its economy and the nation as a whole – is ascending. Its leaders are using their new economic, political and global clout in many noticeable ways.
There have been reports out of Greater China about whether that country has entered a housing bubble and its growth is sustainable.
As for the United States, the country is trying to leave its Great Recession and find firm financial footing for the new decade. People also are questioning the country’s overall place in this post-Great Recession world. And businesses continue to eye the roaring Chinese market.
On top of all of this, Chinese President Hu Jintao is scheduled to visit the United States this year. President Barack Obama invited him during their meeting in Beijing last year.
That makes the Google-China issue involving cyberattacks, censorship and a true free flow of information one of the best and, likely, most prolific dramas to watch.
Google’s market share is a reported 35 percent with Chinese officials noting there are about 338 million Internet users in the country.
Almost all of the issues that parties in China wanted to keep separate are, in some way, touching.
That includes: politics, commerce, technology, online searches, investments from a U.S. company and the sensitivity of Chinese officials in maintaining stability given how new leaders historically have gained their titles.
David Drummond, Google’s chief legal officer, laid out his company’s concerns Tuesday, including a sophisticated cyber attack on Gmail users – including activists who are critical of China – and concerns about the limit and censorship of information of Google.cn, which operates in China.
The Chinese government responded by saying that the Internet is open in China and that international Internet companies in China need to abide by Chinese law, according to articles in the People’s Daily and China Daily.
Chinese Foreign Ministry spokeswoman Jiang Yu explained:
China has tried creating a favorable environment for Internet….China welcomes international Internet companies to conduct business within the country according to law….China’s law prohibits cyber crimes including hacker attacks.
The China Daily printed an article saying that Google essentially was trying to “pressure” the Chinese government.
Whether this remains just a blip or bellwether of a moment remains to be seen. But even if it’s just a blip, it’s big.
Nicholas Kristof, a long-time New York Times writer and well-respected China watcher, weighed in with praise for Google in his recent column. A few days earlier, the Times ran an editorial about China, arguing that leaders there might want to consider how their economic strategy is affecting the globe.
Of course, Chinese leaders have the right to do what they want as they guide their country.
But blowback can take form in many ways. A modern era also means that technology will bring about change.
There’s also the idea of opportunity costs – and this is a real one for Google in China: In order to gain something, you have to give up something.
Given this context, here are some categories that I think are worth watching:
1. KEY WORDS TO WATCH
The fact that the Chinese government is seeking “more information” regarding the Google news means that communication lines are open.
Chinese government officials could have quickly condemned Google’s move. Just what type of middle ground the two sides might broker, if any, is up in the air.
But reporter Joe McDonald of The Associated Press identified some key language from the Chinese media in his report:
The Global Times, published by Peoples Daily and known for a fiercely nationalistic tone, took an unusually conciliatory stance Thursday, warning that Google’s departure would be a ‘lose-lose situation’ for China. ‘Google is taking extreme measures but it is reminding us that we should pay attention to the issue of the free flow of information,’ the newspaper said. It said China’s national influence and competitiveness depend on access to information and added, ‘We have to advance with the times.’
2. FOLLOW THE LAW
In China, what does that mean?
Who should follow the law and the rules? Should all people in China follow all the laws and rules all the time? If you live in China or do business there and you find the law objectionable or a nuisance, is it permissible for you to ignore it?
If you live in a competitive society and victory is the ultimate goal, why should you follow rules?
3. GOOGLE’S MOTIVE
I’ve seen online comments already saying that Google is pulling a publicity stunt, partially to generate more momentum for its search engine in China, which only has about 35 percent market share.
The argument is that Google wants money, that it’s a business. Baidu is the big player in China’s search engine market.
But in the CNBC interview above, Drummond explained that it was not a financial strategic move and that revenues fail to account for a large portion of money for Google.
“This was never really a financial move for us,” Drummond said. “…Our revenues from the China business are truly immaterial.”
4. UNINTENDED CONSEQUENCES
If Google actually shuts down its search engine in China, people living in that country might find other ways to access information from the Mountain View, Calif.-based company.
People living in China – and many other countries – realize that if barriers go up, someone out there is smart enough to go around them – especially in the case of information that floats in the ethers.
5. FOREIGN DIRECT INVESTMENT
Presuming that Western companies have money to invest, especially in the future, would they want to invest in China should the Chinese government actually make or enforce rules which produce an unfriendly business climate?
If the Chinese government and Google maintain their respective positions, what type of message would that send to the various international companies that want to remain in China to do business?
The Times has an article talking about reaction from international businesspeople in China. Many people declined to be identified because they feared action from the Chinese government.
It also discusses whether international companies will revisit their policies of operating in China, given Google’s public stand.
China might have enough capital these days such that foreign investment has dropped as a priority.
But international companies in China do, as Chinese government officials know, employ a large number of Chinese citizens. The companies also spend money.
6. WHAT WAS THE TARGET OF THESE CYBER ATTACKS?
In his CNBC interview, Drummond pointed to evidence that Gmail accounts of activists who are critical of the Chinese government were the targets.
He also said it was much bigger, explaining that it went just beyond Google and extended to other companies.
But in a different CNBC interview, David Garrity, an analyst who covers Google for GVA Research, said the prize was actually substantial source code – and that the attacks amounted to intellectual property theft.
One gaping hole in Garrity’s comments was that he failed to state, or at least allude to, his sources or give evidence. I know stock analysts often talk to people at the companies they cover and present the information as solid fact.
That said, this is what Garrity asserted on CNBC:
What is actually going on here isn’t so much the fact that you have Gmail email accounts that are being broken into. You actually had a fairly substantive series of cyber attacks taking place in mid-December, which actually ended up in a fair amount of core source code from Google being essentially misappropriated from the company. This isn’t a matter of essentially upholding privacy. This is a matter of intellectual property protection. And when you start going after the source code for a software company such as Google, you’re going after what basically are the crown jewels for the company.
I have no idea if what Garrity said is true.
The CNBC journalists who were interviewing him failed to ask for more evidence – because if this is true, it’s raises the severity of this incident to higher levels.
If it is true, I’m sure major business journalists in the United States are racing to their sources to confirm and shed light on the information. That core of smart technology bloggers is probably beating the bushes to get their sources to confirm and expand upon this.
If this is true, why did Google not come out and tell the public?
What Google has told the public is that the Gmail accounts of activists were the “primary” targets and that security fixes have been made.
So, if Garrity is right, then Google needs to return again to address the source code angle because shareholders are probably clamoring to know.
Again, if Garrity is right, I’m sure U.S. government officials have been briefed.
It is a huge charge but it is puzzling.
I’ll wait and see if more developments and evidence surface on this front – especially from national news outlets which probably want to advance this serious allegation.
7. DOES GOOGLE HAVE TO PHYSICALLY BE IN CHINA TO BE IN THAT MARKET?
This is connected to the other question that people are asking: Will Google actually leave China?
Obviously, the answer falls on the co-founders and highest executives.
But the Google executives were the first ones to raise it publicly.
To maintain their credibility – or what credibility you put into the company – they’re in a tight spot. But like I’ve said before, it is possible that they’ve said, “We’ll take that risk.”
If they do want a Greater China presence, there are places outside of mainland China where Google executives can set up operations.
I’m sure executives are reviewing their viewership in China and how that relates to advertising dollars it brings the overall company, among other topics.
Finally, Siva Yam, president of the United States of America-China Chamber of Commerce, was absolutely correct in comments to the AP:
As long as you aren’t involved in politics, the media or pornography, the government will leave you alone.
That is true.
In this case, though, one of the world’s leading companies, Google, actually deals with media and information which can be political.
And the issue about the flow of information, whether it’s free or filtered, in the world is this: It can move in surprising ways.
NOTE: If you didn’t see it, I wrote an analysis about the subject for TechFlash. I also posted a blog entry on Wednesday stressing the importance of warm, long-term U.S.-China relations.
I know both countries have brilliant, visionary and ethical people who really can revolutionize the world in many ways.
But nearly everyone can feel an externality.
