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Google's (Nasdaq: GOOG) relationship with the Chinese government officially entered the brinksmanship phase this week with the announcement from the company that it is ending its Communist-mandated censorship of search results and directing queries to its unfiltered Hong Kong-based service. The Great Firewall immediately slammed down on some of those results, and there are reports of possible backlash involving other Chinese business dealings for Google, particularly in the mobile space.
Meanwhile, those viewing this current round of quick-steps in the strange dance between the company and Communist Chinese leaders are doing their own searches; they're looking for clues as to how other tech companies will react to Google's moves, and they are seeking signs regarding China's near-term strategies for balancing economic reform with maintaining an iron grip on the flow of information.
"Overall, China is entering a period in history where there are a lot of uncertainties," Matthew Gertken, China analyst for global intelligence company STRATFOR, told the E-Commerce Times. "They've experienced rapid growth, and there's a lot of reason to suspect that growth can't be maintained forever."
China is banking on stoking that growth with foreign technology companies gaining access to the biggest country on the planet, where the market for computers and smartphones is still in the development stage. However, Google's gambit -- sparked by allegations that its recent hacking intrusion originated in China -- could put an unwanted spotlight on the negatives those companies could face in dealing with the Communist country.
"This shows that companies are facing an increasingly difficult environment in China for human rights, and for operating in an ethical and honest way," said Cynthia Wong, Ron Plesser Fellow at the Center for Democracy and Technology. "It puts other companies on notice that these risks are out there. Most people think that companies do have responsibilities to users, and they need to think through these issues before they go to China."
The Fallout
Media reports on Tuesday showed that some unfiltered search results from Google's Hong Kong-based service were being intercepted. Google spokesperson Jay Nancarrow told the E-Commerce Times late Tuesday morning that "it seems that certain sensitive queries are being blocked. However, the Google.com.hk site is not currently being blocked."
Other possible signs of backlash against Google are showing up elsewhere. Tuesday's New York Times reported that deals involving Google mobile services may be in jeopardy because of the company's actions. Citing analysts and business insider sources, the Times reported that China Mobile, the country's biggest carrier, would backtrack on its decision to use Google's mobile search engine in its phones, and that China Unicom might think twice about using the Android operating system in a new smartphone.
How much of a roll of the dice is Google's decision to provide uncensored search results in retaliation for being hacked? "If Google and all things Google, including Android, become persona non grata in China and the carriers themselves won't carry these phones, then it becomes very problematic, and that creates an opening for others," Sterling Market Intelligence principal Greg Sterling told the E-Commerce Times. "Nokia is already dominant in China. The iPhone will be there and the BlackBerry is there. There are already quite a few choices for consumers, and Google would not be getting the benefit of that giant population."
What Will China Do?
China could always expel Google, or Google could always pull up its stakes and leave, but Wong doesn't think that's likely. "That's not really in either's interest. Google has demonstrated its commitment (to China). It has said, 'we want to increase access in China and we want to find ways that are good for users.' What they've done here is place the ball in China's court," Wong told the E-Commerce Times.
China must weigh its actions carefully, James Lewis, director of the technology and public policy program at the Center for Strategic and International Studies, wrote in a CSIS commentary . "Google's action may hurt its position in China, but it may help it in the rest of the world. Who would ever pick Baidu over Google if they had a choice?"
The government will attempt to stir public sentiment against Google, Lewis thinks; easy to do when you control the media in the country. If that happens, expect possible restrictions on Google and more pressure on the company's partners in other industry segments. But if the public isn't aroused against Google, the government will probably continue to constrain access to the Hong Kong Web site. "They will also track the numbers. One change is that before, Google did the filtering for them; now, they have to do it themselves. It is a serious loss."
What Will Google Do?
Google may be taking a business risk in a global economy that is slowly coming out from under a recessionary cloud, but Gertken believes the company is one of the few in the world with the clout to engage the Chinese government toe-to-toe, and that may set a precedent for other companies. "I think it plants a seed. I think it's really important in the calculations that foreign companies use to determine whether a relationship with China is beneficial overall. Once they get to China, they invest a lot in operations, and then they find a combination of factors -- political conditions, heavy regulations, constant security threats -- and those things can add up on a balance sheet."
Sterling reminds those watching the drama in Beijing that Google is standing on principle -- but only after it says it was hacked. "There's this notion that Google says, 'we're playing by the rules but you're not, so we're no longer going to comply.' It doesn't read like that explicitly because there's no conclusive evidence that the Chinese were involved (in the hacking), even though there's probably cause to believe that."
However, Sterling still believes the standoff between the two is a significant event that will require high-level diplomatic skills on all sides to resolve. "I think that it does have a ripple effect, which may be large or small. China will try to contain and prevent this from spreading (to other companies.) We'll see over time whether or not the absence of direct access to Google by the people creates problems internally for the Chinese government."
