Google's China Stand-Off: 10 Reasons It Matters

Last Updated Jan 16, 2010 11:20 AM EST

Google's intensifying stand-off with China has implications for Internet users that exceed the company's threatened withdrawal from the Asian powerhouse over cyber attacks and censorship.

On a macro level, the confrontation focuses global attention on personal data security, freedom of expression, open commerce and reprisals by governments that have as much leverage and resolve as many of the Internet players involved. On a micro level, it publicly showcases how Google can use its clout for corporate and common good.

Some short-sighted press and investors are fixed on the mere drama and its impact on quarterly results, which Google reports Jan. 21. Wall Street has already written off the situation as a footnote to Google's balance sheet, with China generating about two percent (or less than $500 million) of its annual $20 billion revenues, according to Piper Jaffray & Co.

Skeptics question whether Google's new found morality is too late to make a constructive difference, and whether it will adversely affect sales of its Android operating system-based smart phones in China's booming mobile market. Cyber attacks on Twitter, Yahoo and other firms in the past year have failed to rouse as much attention and action.

As the world's largest Internet market (it has more than 384 million users) and soon expected to become its dominant economy, China's compromise of Internet security and freedom is all about the global long view. It compounds China's uncomfortable hold on US debt, technology and markets. The Chinese government's heavy-handed censorship is uniquely evident in the sparse, skewed media coverage in China of the Google conflict.

Whatever the outcome, it will set a precedent for western corporate and consumer relations with China, where Google and other multinationals have long struggled. US lawmakers applauding Google's defiance are urging other US firms to do the same even as it complicates American diplomacy and efforts to avoid a damaging trade war.

In a Jan. 12 post on Google's official blog, the company said it was reconsidering the way it conducts business in China in the wake of continuing cyber attacks and censorship. As a result, it no longer censors its results on Google.cn. While the central issues are not new, Google's willingness to take a demonstrative stand will shape the global Internet ecosystem, for better or worse.

Here are 10 more reasons why this unprecedented stand-off and its outcome matter:

    1. It raises the prospect that the Internet can be shackled by authoritarian governments with their own Web agendas, standards and values. Within the past year, the Chinese government has shut down thousands of web sites, arrested thousands of Internet users, and blocked social networking sites including Google's YouTube, Twitter and Facebook.
    2. It could leave China with a single dominant search engine, Baidu, which has about two-thirds of the exploding market. Baidu has been criticized for poor quality search results and advertising, and removing links related to sensitive news.
    3. It heightens concern about the security of the detailed data Google amasses on individuals. Chinese hackers have used sophisticated programs to tap profile, account information and communications of human rights activists to use against them.
    4. It fuels China's flagrant theft of intellectual property. After decades of permitting the black market piracy of films, TV programs, books and other copyrighted materials, China has increasingly turned a blind eye to the illegal hacking, manipulation and sabotage of information stored on or linked from Google and other popular web sites.
    5. It underscores the risk assumed by employees of multinationals working in potentially hostile foreign environments. Google says it is working to protect its China-based employees from potential government reprisal including interrogation, arrest and imprisonment.
    6. It puts Google in the precarious position of potentially leaving behind some 700 trained technology experts and some infrastructure to the benefit of its Chinese competitors. For now, Microsoft says it would not follow Google out of China.
    7. It would limit the ability of US companies to continue working inside China with free expression advocates, who instruct citizens on how to use restricted media resources such as Twitter and virtual private network servers outside of China's boundaries and control.
    8. It will set the tone for similar tussles over cyber attacks and censorship in several dozen countries where Google and its peers face similar challenges and conflict.
    9. It is providing Google with new support and respect at home, which will not necessarily translate into regulatory clear sailing for many of its more controversial domestic business ventures. That includes Google's latest proposal to become an unregulated market maker in energy services.
    10. It is challenging the Obama administration to take a more definitive stand on Internet security and freedoms at home and abroad. Leading tech company executives meeting with the President at the White House this week encouraged more aggressive incentives for innovation and protections for global expansion. The State Department said Friday it will lodge a formal complaint with China over the alleged hacking incidents. During his recent trip to China, President Obama characterized Internet freedom as a central human rights issue.
      • Diane Mermigas

        Diane Mermigas has been a contributing editor and columnist at Mediapost, The Hollywood Reporter and Crain Communications as well as writing for such sites as Seeking Alpha, TrueSlant and BNET. In addition to speaking and television appearances, Diane consults with companies in digital transition, and is completing a book on the future of media.