Probing Logical Disconnects in Google’s Chinese Standoff

At the outset, I want to say that what follows is largely conjectural. It’s difficult to know exactly what happened and continues to happen between Google and China’s authorities.

Still, it’s a fascinating drama and a good mystery, and I can’t help trying to untangle it. It’s a case where only the tip of the iceberg is visible, and one wonders about what’s unexposed.

If we make a chronological and logical examination of Google’s ongoing stalemate with China, though, we quickly discover that appearances are deceiving.

Let’s review: Before the alleged hacking incident, reputedly undertaken by parties with the express consent or official mandate of the Chinese authorities, Google operated a censored, filtered search engine within China. It might have chafed under the state-ordered constraints, but it acquiesced to China’s dictates.

Then, of course, Google and others were subject to the hacking episode. We still don’t know all the answers about what the hackers wanted, what they got, or why they did it. We might never know all the answers.

Evidence suggests that the hacks originated in China, and there’s a strong intimation that Chinese authorities sanctioned or commissioned the digital skullduggery.

What doesn’t make sense, though, is Google’s reaction.

Think it through: Prior to the hacking attacks, Google is content to abide by China’s censorship regime. Like nearly every other Western company that does business in China, Google heeded the decrees and regulations of Chinese authorities. Censorship, and Google’s opposition to it, wasn’t the issue. How did it suddenly become the issue after a hacking attack?

If Google were upset about the hacking, it could simply withdraw from China. It would be justified to do so. Why should a company subject itself to what it believes is state-sponsored espionage and possible theft of trade secrets and valuable intellectual property? If that’s what’s been happening, Google would be right to take its colored balls and go home.

But linking censorship to hacking and espionage, well, it makes no sense. There’s no causal connection, there’s no direct link. These are discrete issues, and they’ve been brought together arbitrarily, for reasons about which we can only wonder.

My supposition is that Google invoked the censorship card because the Chinese authorities are sensitive to the charge. Sure, China censors its Internet, and much else besides, but it doesn’t like foreigners highlighting the issue. China censors, but nobody from outside the country that does business there is supposed to draw attention to the fact.

Google did just that, hitting a raw nerve in the process. But if censorship isn’t the real issue, if Google was willing to play under those rules before and would probably play under them again, what’s really happening?

Clearly, Google is infuriated by the hacking. While it’s the market leader in web search practically worldwide, it’s a relatively remote second to Baidu in China. The fact is, the Chinese authorities favor an aggressively mercantilistic trade strategy and many Chinese people are staunchly nationalistic. This results in Chinese-vendor dominance in China’s home markets.

From Google’s perspective, it’s bad enough that it must fight a skewed battle, against an opponent benefiting from home-field advantage and government support. (Government support counts for a whole lot in China.) At the same time, Google must defend itself from incursions on its intellectual property and trade secrets. And at least some of the hacking was directed at Google intellectual property.

My assumptions is that harassment and industrial espionage probably pushed Google over the edge, leading to its censorship charges and to its threat to withdraw from China. Google concluded that there was no way it would ever assume the leadership position in the Chinese market. Worse, it concluded that, if it stayed, it would suffer losses of intellectual property that could bolster competitors in China (and then perhaps in other emerging markets).

Now, what’s being negotiated between China and Google? I think Google is demanding that hacking, spying, and plundering of IP come an abrupt and permanent halt. If China doesn’t agree, Google will withdraw from the country. The company might even publicize its full reasons for making the retreat.

Needless to say, such a setback wouldn’t be good for China. If Western technology companies don’t continue to set up shop in China, the country won’t be able to learn from them and to facilitate technology transfer that will result in China’s technological leadership.

Still, does China need to worry? No matter what indignities China visits upon Western corporations, the companies seem more than willing to submit to the impositions. In the near term, maybe the gambit pays off for these firms, but — if I’m right about what’s happening between Google and China — long-term gains are far from assured.

In China, the odds favor the house. Given the current dynamics, it’s difficult to see how the situation will change.

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