- The Washington Times - Tuesday, March 16, 2010

Can Google survive without China? Can China survive without Google?

The world may be about to find out, as the clash between the world’s biggest search engine and the world’s biggest Internet market approaches a climax. Eric Schmidt, Google’s chief executive, told reporters in Abu Dhabi last week that “something will happen soon,” and Chinese leaders in recent days have aggressively put the ball back in Google’s court.

China has already banned Facebook, YouTube and Twitter, and now appears prepared to move on without Google.

Meanwhile, Google officials reportedly are “99.9 percent” certain to implement plans to shutter their Chinese search-engine service, carrying through on a protest over what the company calls government censorship requirements of its Chinese operations.

“It looks like Google will be gone” from the Chinese search-engine market, said James Lewis, a senior fellow at the Center for Strategic and International Studies. Google holds about 33 percent of the market, a sizable chunk but still significantly below the 63 percent share controlled by Baidu, the China-based, homegrown leader, according to a January survey by China iResearch Consulting.

The clash of titans is being intensely followed in the business world, as a sign of the openness and future potential of the world’s newest economic superstar. Whether Google’s departure is only the first of a trend is an open question.

“Given the size of the opportunity, foreign-based companies have to think twice about leaving China if they think they can make a profit,” said Hal Sirkin, a senior partner at the Boston Consulting Group.

While China does offer great potential, the huge Chinese Internet market and its nearly 400 million users so far have not been a major source of revenue or income for Google.

Google describes its Chinese revenues as “immaterial.” Its 2009 revenues in China were estimated at about $300 million, or a bit more than 1 percent of its $23.7 billion in total revenue for the year.

Google’s net income topped $6.5 billion last year, nearly 30 percent of revenues. Even in the unlikely event that Google generated a 40 percent profit margin from its Chinese operations, that income would still represent less than 2 percent of its total last year.

Google revealed in January that it had suffered “a highly sophisticated and targeted attack on our corporate infrastructure originating from China.”

Noting that the attackers accessed Gmail accounts of Chinese human rights workers, Google threatened to shut down its China Web site, Google.cn, and withdraw from China unless authorities eliminated censorship requirements for Google’s search engine.

Google executives have been negotiating with Chinese authorities during the past two months. Citing a person familiar with Google’s thinking, the Financial Times reported Monday that the firm is now “99.9 percent” certain to shut down its Chinese search engine.

In an interview, Mr. Lewis, who monitors China’s information-technology industries, speculated that Google may have tested the idea of a less restrictive search engine on Chinese leaders, who, he said, clearly pushed back hard.

Speaking at China’s annual legislative session, Li Yizhong, the minister of Industry and Information Technology, bluntly declared on Friday: “If you want to do something that disobeys Chinese law and regulations, you are unfriendly, you are irresponsible, and you will have to pay the consequences.”

Mr. Li aggressively defended China’s censorship policies.

“If there is information that harms stability or the people, of course we will have to block it,” he said.

On Monday, China’s state-run Xinhua News Agency published a biting commentary accusing Google of “sensationalizing” China’s Internet-censorship policies and refusing to follow “basic international practices” by adhering to local laws.

“There is no space to bargain on this issue,” the commentary concluded.

The Chinese comments followed equally forceful views expressed by a Google executive in testimony last week before the House Foreign Affairs Committee.

“Google is firm in its decision that it will stop censoring our search results for China,” Google Vice President and General Counsel Nicole Wong testified. “If the option is that we’ll shutter our [China-based] operations and leave the country, we are prepared to do that.”

By demanding an end to censoring its search results, Google put China in an awkward spot, Mr. Lewis said. “China can’t do special favors for Google without doing the same for Baidu,” Mr. Lewis said. “But if they loosen up on Baidu, they will create political risks.”

China requires search engines to censor results by filtering out material on the 1989 Tiananmen Square massacre, the Dalai Lama, Human Rights Watch and other topics deemed taboo by Beijing censors.

If Google shuts down its search-engine operations in China, it may still want to continue other ventures there, including its fledgling mobile-phone operations and advertising sales for other Chinese Web sites.

How Google exits the search-engine sector could affect those other business areas.

“If Google does something to embarrass China,” Mr. Lewis said, “Google will be pushed out entirely.”

The Xinhua commentary left no doubt how Chinese leaders view the Internet without Google.

“One thing is certain,” the news service declared. “The earth will not stop spinning because Google leaves.”

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