Google's decision signals change in Western businesses' approach to China

The Chinese government has condemned Google's partial retreat from its operations in mainland China. Web users there have been left to wonder whether they'll still get access to the Internet through Google. (March 23)
By John Pomfret
Washington Post Staff Writer
Wednesday, March 24, 2010

BEIJING -- The showdown between Google and the world's most populous country marks a turning point in one of the great alliances of the late 20th century -- the bond between Western capitalists and Beijing's authoritarian system.

After Google's audacious decision to confront China over the issue of censorship, officials here insisted Tuesday that the Internet giant's case was an isolated one and would not affect China's opening to the West or its market-oriented reforms.

But Western businesspeople said the episode had underscored a broader sea change in how U.S. and European companies deal with the government here. More specifically, they said, Western businesses have begun to push back openly against China.

In announcing Monday that it would stop censoring results on its Chinese site, Google acknowledged that it was "well aware" that the Beijing government "could at any time block access to our services." But the company also made clear that such an outcome would be better than having to censor itself any longer.

Although China has not yet taken any draconian action against Google or its employees, it has started censoring results for sensitive searches in China on Google's Hong Kong-based Web site, where its users on the mainland have been redirected. (Hong Kong users could see uncensored results.)

There were also signs that China wants to punish Google in other ways. On Tuesday, a Hong Kong-based Internet company, TOM Online, announced that it had stopped using Google's search tools. TOM is owned by the family of Li Ka-shing, Hong Kong's richest man and a supporter of the Communist government. Meanwhile, analysts said two major state-owned mobile phone companies on the mainland, China Mobile, with 500 million users, and China Unicom, China's second biggest, were rethinking deals with Google.

Analysts say that China's willingness to stand up to Western firms is a consequence of its meteoric economic rise. The government doesn't need Westerners' investment as much as it once did, and it is increasingly bald-faced about its desire to acquire their technology.

"The Google affair is both catalyst and evidence of change," said Arthur Kroeber, managing director of Dragonomics, a Beijing-based economics firm. "We are at a turning point. It had been very, very unusual for foreign business to say anything too negative about China because the opportunities here were too large."

Indeed, for decades, Western businesses have been Beijing's closest friends. When Congress railed against China over human rights issues and threatened to revoke its most-favored-nation trading status in the 1990s, the American Chamber of Commerce in China and other groups flocked to Washington to state Beijing's case. The last major Western company to openly confront the Chinese government was Levi Strauss, which withdrew from the country over what it called China's "pervasive violation of human rights."

But more recently, Western businesses have begun to voice concerns about their treatment in China. The European Chamber of Commerce has issued reports over the past several years that say China's business environment is deteriorating. One report accused China of embracing "economic nationalism"; another said China had effectively halted economic reform.

"In 2009, China was one of only two major growth markets in the world, but the door here isn't opening wider, it's narrowing," said the chamber's president, Joerg Wuttke. "China talks about opening up, but in fact local implementation is not just really bad, it's worsening."

Even the American Chamber of Commerce in China, which has long been a friendly venue for the Chinese government, has gotten into the act. On Monday, it issued a report that said business confidence among 203 members surveyed was at its lowest point since polling began four years ago.

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