Google vs. China, who will give in?

Google announced on Wednesday that they are going to review their operations in China and hinted at the possibility that they might leave China all together after they realized the extent that Chinese government officials (the likely culprits) had hacked in to the Gmail accounts of human rights activists. Google has been operating in a more pro Chinese government way there by censoring certain search results on Google.cn. They had to agree to those terms otherwise, they would not be able to have any presence in China at all. However, this new revelation of the actions taken by government officials against private citizens had crossed the line in Google’s mind and they said they would meet with the government to see if better terms can be reached that will allow Google to operate their Chinese division in a more suitable way. If Google does end up leaving China, it will cost 700 Chinese employees their jobs, but Google stated that it would not be a noticeable dip in their business over all.

What does this mean to you and me as non-Chinese residents right now? Honestly, nothing. It will not change how you use Google at all. Nor will it seriously impact your possible investment holding for the medium term. However, it is another spark in the already tense US-China relations which is not something that anyone should be thrilled about since China holds about $800 billion of US debt and the Chinese rely on the US to keep consuming and having their goods produced in China to continue their economic emergence. The two countries difference of opinion on human rights and freedom of speech are very clear in this issue and it is interesting to see what transpires from it.

I find it extremely hard to believe that China will be a willing partner to Google and allow them to operate even close to the way they are used to operating. China is also very sensitive to the US trying to undermine their one-party communist rule and can easily misread the US and accuse them of trying to do just that. On the other hand, it would look really bad for Google to go in to negotiations with the Chinese government, achieve nothing by way of better terms from them and still remain there after they said they might leave if conditions do not improve. So, the possibility is real that Google will leave China. This will create a hole in that market that will likely be filled by Chinese competitor Baidu.com and that is something that perhaps China will not be too upset about anyways. For Google, it means that they will have no direct presence in the largest emerging market in the world and although it does not represent a meaningful part of their business now and maybe not for the next few years, conventional thinking would suggest that 10 years down the road it will be a big deal for them and this decision could affect them for many years to come. Stay tuned to this story as it will be interesting to see these giants go at it.

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