The Google-China Detente Continues

Investor’s Business Daily had a Friday story about how China renewed the Internet search king Google’s license to operate in China for another year:

China and Google reached an uneasy truce Friday as the country with the most Web users renewed the Internet giant's operating license. But the censorship issues that caused the rift remain unresolved.  In a single sentence added to an earlier blog posting, a Google executive confirmed the license renewal early Friday.

But Google's China site continues to be limited. And the company continues to help users avoid the government's policy of censoring search results by allowing users to go to its uncensored site in Hong Kong at the click of a button.

Google won the renewal because it was able to placate the government enough, says Lawrence Reardon, associate professor of political science for the University of New Hampshire.

"This is the way the Chinese government plays the game: You give them respect by saying 'we will add in this extra step and then we will not say anything more about democracy and freedom and all of the rest of it,'" he said.

At the same time, though, the government's actions are intended to show it still has the ultimate control, Reardon says. Google will have to be extra careful while operating in the region, he says.

"Google has an uphill battle," Reardon said. "They know that the Chinese government can still clamp down on anything that Google wants to do in China."

This illustrates a point I have made earlier on this blog about China’s position on technology – its geopolitics drive its position on technology.  For private industry, the allure of China is a huge potential user market – with a population of 1.2 billion, that’s a lot of money to make.  The reality for most, however, is that China has a small consumer market, has a lot of high hidden costs (lots of government regulations and politics), and they become prone to intellectual property theft.

China’s position on geopolitics is to maintain its own internal stability.  With such a huge country (in terms of population and geography) and an ethnic minority base of 120 million people, and growing disparity between the poor rural interior and the wealthy coastal regions, China needs to be able to resist foreign influence.  The only times in China’s history when it has been invaded is when it has been fractured and internally divided.  Unlike in the United States where the primary factor driving business is profitability, in China they are obsessed with growth and maintaining employment (since masses of unemployed people can become restless).

Furthermore, the wealthy coastal regions have interests that are contrary to those of government – they are focused on trade and increasing their own power and influence, while the government is interested in containing it.  Thus, the government tends to be suspicious of the tech industry because the free flow of information can weaken their authority (see Iran during the 2009 protests after Ahmadinejad’s re-election).  Given that China wishes to maintain a strong central government, and given that they are distrustful of tech companies in general, and given that they are looking to limit the amount of foreign influence on the country, companies like Google will forever face an uphill battle.  The business atmosphere just isn’t the same in China as it is in the United States.

Google really has two choices: either continue to operate in China and forever have to put up with stuff like this, or pull out of the country altogether.  Their revenue stream isn’t very high in there anyhow (the analyst in the article suggests it is maybe 2% of their total revenue) so they would only be surrendering the market to Baidu, not US competitors Bing or Yahoo, if that’s the route they want to go.  The lessons learned here are the same in any country that attempts to penetrate the land of … uh… whatever the nickname for China is: you’re not in Kansas anymore.

Comments (2)
  1. That's good news for Google

    Hope Google will starts its business in china..

  2. Google trying to reenter china……

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