Tuesday, March 23, 2010

Analyzing the Significance of Google's Slow and Shrewd Exit from China

Google's recent announcement that it is no longer going to self censor its Chinese search engine and move its servers to Hong Kong is significant for more than a few reasons:

1) The move marks the end of the first phase of a Chess game that has gone on between Google as one of the premier global corporations and the Chinese state

2) It demonstrates that there is a moral center to a US global corporation and that is committed to "do no evil". Arguably the move would not have occurred had not China according to Washington Post reports , "targeted (them) in computer hacking attacks originating from China." Such attacks included prying "into the e-mail of human rights activists, according to Google..(raising) the specter that the Chinese government played a role in the espionage, although Google never made a direct accusation."

3) It makes more visible the wider economic war going on as China seeks entry into many other world markets and competes with Google for dominance in some economic sectors. As the Wall Street Journal reported "Signs of nationalism are evident in the grooming of state-owned companies to dominate their industries as "national champions," often at the expense of private Chinese companies as well as foreign firms. From airlines to coal mining to dairy products, government policies are expanding the state's role.A year ago, in a move foreign critics called protectionist, Chinese regulators rejected a bid by Coca-Cola Co. for China Huiyuan Juice Group Ltd., saying it could crowd out smaller companies and raise consumer prices. The two combined held just a fifth of China's juice market.In July, four executives of Anglo-Australian mining giant Rio Tinto were detained, initially accused of stealing "state secrets," amid tense negotiations between global miners and China's steel industry over iron ore prices. Rio Tinto denies wrongdoing by the men, who await trial on reduced charges of bribery and theft of commercial secrets."

4) It reveals the relative power of an IT savvy global corporation and the relative fragility of a fearful Chinese one party state. The genius of Google's strategy is that by moving its search engine servers to Hong Kong (where different legal rules apply--two systems one country) they can can reveal the uncensored web to a country that had no idea that information was being withheld from them. We see what happens--could be as important as the kind of radio/TV stations etc Russians were picking up in the 1980s that led to the end of the cold war.

5) The conflict spotlights the historical tensions within the China's relationship to the west. As the WSJ comments "For many multinationals in China, today's profits follow years of investment, much of it encouraged by government policies designed to lure capital. Now, at the point when their dream of access to a giant market is becoming reality, China is so prosperous that it has less need for foreign funds. Foreign investment has grown much slower than the rest of China's economy, amounting to 1.8% of gross domestic product in 2009, down from a peak of 6% in 1994." That economic security means that those among the elite ruling class "who has long harbored suspicions the West wants to hobble its economic rise" have now have had their hand strengthened. Now this group wants to resist Google and others by wanting to limit "foreign presence in the economy." This group of economic nationalists seem determined and unusually angry judging by the scale of the cyber-attacks that took place back in January.

So far the US and the West reacted quite calmly to these provocations. Clearly China can behave so badly sometimes because they know we need them to continue to buy our debt and to help us solve some key problems around the world,so it will be interesting to watch whether China will continue to ratchet up the tensions or not. The best outcome will be to allow Google to continue to operate from Hong Kong and to slowly absorb the reality that we live in an age where countries borders' can no longer stop the free flow of information.

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