China's commercial cheating Googlewhacked

Google’s single motto of “don’t be evil” was called into question when they agreed with the Beijing authorities to censor the Google’s Chinese search engine. A dipped toe into the pool of moral dubiousness was the price of Google’s access to the China market. However, this agreement verged on collapse on the 12th January, when Google announced that its users were subject to Government-sponsored cyber attacks.

David Drummond, Google's corporate development and chief legal officer, posted a statement on the company's official blog, indicating it may "shut down Google.cn, and potentially our offices in China."

Although the international business press flourished into life following Google’s announcement, the Chinese seemed uncertain how to respond. The main Chinese news outlets set-up a smokescreen story on minor copyrights disagreements on electronically publishing out-of-print books.

Some days later, the major Internet news sources in China acknowledged the dispute, but played down its importance. CCTV even claims that there is “no indication” that Google is leaving China.

Now, most Chinese reports admit that Google took this action following “attacks” but do not specify that the Chinese Government alledgly orchestrated these cyber-assaults.

China appears to be rattled by Google’s defiance. All that the Government could manage was a bland call to observe Chinese directives. Yao Jian a spokesman for the commerce ministry, said

“Foreign companies, including Google, should all follow international standards and respect local law and regulations and local culture and customs to shoulder social responsibility."

Compared to China's previous tough-talking diplomacy, it almost looked like a shamed-faced admission of guilt.

The internal effects of Google’s withdrawal are limited. Although there are an estimated 80 million Google-users in China, they are a poor second to China’s main search engine, Baidu, which commands 60% of the market share in Internet searches. Baidu shares on the United States NASDAQ market jumped 13.7 percent on Wednesday13th January to US$439.48.

It is doubtful whether there will be any further political unrest. The entire Xinjiang region was cut off from the Internet after the July 2009 riots. There was little resistance to the region of 19 million half a year without net access or contact with the outside world, despite a summer of violence and protest.

Nevetheless, the withdrawal of one of the largest multinationals will have a huge impact on foreign business confidence. In an attempt to calm the storm, a Foreign Minister spokesman insisted that China has a "favourable environment for the Internet." Recently, it announced that foreign investment has doubled in the last quarter – but all that may be at risk.

(Source: http://www.chinadaily.com.cn/bizchina/2010-01/16/content_9330224.htm)

The business world accepts China’s communist trappings as cosmetic. But the private sector’s main issue with China is its hyper-nationalistic tendencies and its casual breaching of basic trading principles. Intellectual property rights have long been a sticking point between China and the international business community.

China has a long history of flagrant theft of intellectual property rights. CYBERsitter, a web-filtering company, is seeking $2.2 billion in damages from China for alleged theft of is software to develop the new Green Dam Internet control software.

Amongst US firms, China holds the worst record in violating intellectual property rights. The US custom authorities claim that 81% of sized counterfeit originate from China.

Recently, however, underhanded business practices have taken a turn for the sinister. Washington recently claimed that 30 cyber attacks against its companies were conducted over the last year – including Google. Even CYBERsitter’s lawyer, Gipson Hoffman & Pancione, suffered a Chinese-based hacker.

The extent of the change may be exaggerated. A 16th January search on http://www.google.cn/ on the "Tiananmen Square Massacre" produces a mainly tourist advertisements and videos of attractice presenters urging you to visit "fantastic" tourist must-do.

Yet, Google’s stand may prove a turning point for trading in China. Will Beijing yield to commercial realities after decades of political pressure have failed to bring about normalisation of Chinese business?

If not, with its barefaced theft of commercial property and aggressive attitude to foreign businesses, will multinationals, long mesmerised by China’s huge market size, finally full the plug on foreign capital?

Either way, Google’s unprecedented confrontation with China has revealed a super-power less sure of itself than the business world has hitherto dared to realise. And highlighted the massive risk that investing in China represents.