Following a hack attempt on Google originating in China, the Web search powerhouse stood up to the country’s government and declared it would no longer cooperate with its censorship laws. In fact, it may stop doing business in China altogether.
Doing that would cost Google hundreds of millions of dollars in revenue per year, as well as any future growth opportunities there. However, what effect would rejection from one of the largest Web companies in the world have on China? Would Google’s alienation over the Chinese government’s censorship policies leave the country looking isolated, or is China simply too bright an economic star to be dragged down by one company’s disfavor?
Few, if any, of the multitudes of foreign companies doing business in China will care if Google leaves, Stephen Orlins, president of the National Committee on U.S.-China Relations (NCUSCR), told TechNewsWorld. The NCUSCR is an American organization, and Orlins is an expert on relations between the two countries.
“The effect on the non-media Internet world is very minor,” Orlins said. “A lot of major U.S. companies, including Coca-Cola, IBM, Caterpillar and GM, are now selling to the China market, and now sales in China have seen double-digit increases, while sales outside of China have decreased,” he pointed out. “So selling to China is very profitable, and Google’s pullout won’t cause companies to rethink doing business there.”
Internet and media companies, on the other hand, have found it difficult to penetrate the China market. “Time-Warner, Google, Yahoo — none of them have made significant amounts of money there,” Orlins said. “Is this going to cause them to take a stand? I don’t think so, but when they review their plans annually, it’s going to make them do a rethink.”
Perhaps the only effect on China would be to reduce innovation in the Internet arena, Orlins said. “Google’s presence forced Baidu to innovate, and Google’s withdrawal will give Baidu more than 90 percent of the market in China,” he explained. “That will lead to less innovation, and that’s bad for Chinese users of the Internet.” Baidu, which has the lion’s share of China’s search market, is a Chinese company.
Win, Lose or Place?
“Google will lose far more than China will,” pointed out Cheng Li, a China expert at the Brookings Institution, a non-profit public policy organization based in Washington. “The Chinese public supports the government, and Google will lose the biggest and most important market in the world,” he told TechNewsWorld.
On the other hand, Beijing needs to move cautiously, Li warned. “Media censorship is unpopular everywhere, including China,” he said. “The backlash against the Chinese government could be overwhelming.”
That, backlash, however, will be a while coming. “My sense is that this backlash will not take place now, with only this incident as a trigger,” Li explained.
“China doesn’t need Google as much as Google needs China,” Warren Cowan, CEO at Greenlight, a U.K.-based search marketing agency, told TechNewsWorld. “China’s got the sophistication, the strength and the will to do whatever it wants.”
Although Google’s pullout would likely benefit Baidu, the Chinese Internet company needs to work to get the extra business. “What Baidu has to do is make it easy for foreign advertisers to advertise with them,” Cowan pointed out. “Foreign companies might be uncomfortable in dealing with Baidu now because it’s an unknown factor.”
The Back Story
Google warned that it might pull out of China following a “highly sophisticated and targeted attack” in mid-December on its corporate infrastructure originating from that country, David Drummond, the company’s chief legal officer, said in a post on Google’s official blog. The attack resulted in the theft of Google’s intellectual property, and 20 other large companies were also targeted, Drummond claimed.
Google’s investigation also showed the attackers tried to access the Gmail accounts of Chinese human rights activists, although only two such accounts appear to have been accessed. Google also discovered that third parties have “routinely” accessed the accounts of “dozens” of Gmail users in the United States, China and Europe who advocate human rights in China, Drummond said. These accounts were most likely accessed through phishing scams or malware placed on the users’ computers.
However, it’s possible these Gmail hacks may not be exactly what they’re made out to appear. For one thing, phishing scams and placing of malware on victims’ computers through various means are methods employed not only by government agents, but also by common cybercriminals looking to commit fraud for profit.
Also, cybercriminals tend to set up servers overseas because that makes detecting them more difficult. “I would absolutely count on it being the case that the attackers aren’t Chinese hackers but other people using Chinese IP sites,” said David Perry, global director of education at Trend Micro.
“Some years ago there was a major case called “The Italian Job,” where hackers broke into an ISP in Italy and infected 10,000 Web sites, including Mother Teresa’s official site,” Perry told TechNewsWorld. “The infected sites would refer you to China, then San Francisco, then Brazil, but the malware authors were in Russia. In this day and age, it really doesn’t matter where the Web site is hosted, because the attackers could be anywhere.”