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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)

And in December, the U.S. Chamber of Commerce in Washington took the unprecedented step of organizing a joint letter, signed by 33 business associations from around the world, criticizing China for a plan that would force foreign companies to hand over their prized intellectual property and trademarks to China if they wanted to keep selling goods here.

Joe Studwell, an author who has followed the perils for Western businesses in China for more than a decade, said the change in tone was part of a "new realism" toward China.

Businesses now understand, he said, that the "unspoken arrangement with China is coming unstuck." China is not opening its markets, nor is it allowing its currency to increase in value, as many had assumed it would.

Relations between China and world's business leaders, however, are still strong. Among the Fortune 500 companies, 480 have investments in China. There are 660,000 foreign companies represented in the country. Foreign direct investment, after wavering last year during the global financial crisis, seems to have rebounded, with an estimated $7 billion to $8 billion a month flowing into China. With its 8 percent growth rate in 2009 and more of the same predicted for this year, China remains one of the only bright spots in the relatively dim firmament of global business today.

And there are still Western business leaders who put a positive spin on the relationship.

Michael Barbalas, president of the American Chamber of Commerce in Beijing, said his group's expanding profile reflects not a souring on China but a realization that political changes have mandated a more boisterous approach.

Ten years ago, for example, China allowed comments on very few, if any, of its laws. Last year it allowed foreign interests to comment on 300 pieces of legislation, he said.

"As China opens up these laws for comment, we found a lot of special interests speaking out," Barbalas said. "So we had to up our game."

Chinese officials insist the Google case is unrelated to the broader business climate here. After the Internet giant made its announcement Monday, Microsoft indicated that it would continue to "comply with the laws in every country in which we operate," disappointing human rights advocates.

In fact, no one expects another Google to confront China soon. But the Internet giant's willingness to do so is a sign of the times.

Meanwhile, how China treats Google going forward is widely viewed here as a test case. The government could force the firm out of China entirely, or it could allow Google to be a symbol of a new kind of relationship with Western companies -- one in which foreigners can do business here without feeling compelled to kowtow to the political system. Many analysts view the latter scenario as highly unlikely.

"Tactically, yelling at Google is unwise," said Rebecca MacKinnon, a visiting fellow at Princeton University's Center for Technology Policy. But "how they handle Google is either going to contribute to reassuring foreign companies that you can do business in a rational manner or to convincing them the regulatory environment is so politicized that you have to prove your loyalty."

"If I were China on this case, I would declare victory," she added, "and then walk away."

Staff writer Ellen Nakashima in Washington contributed to this report.

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