Google: Throwing Down the Gauntlet for Foreign Business in China

Google’s threat to bow out from China is clearly tremendous news. The technology giant has served up for China’s leadership an understated but devastating rebuke of their Internet policies. What amazes is the unabashedly political and moral nature of their declaration; as scores of analysts have already pointed out, besides the potential $600 million in google.cn may have made in 2010, Google risks losing its substantial foothold on what will soon be by far the world’s largest Internet market. Such commercial repercussions are “immaterial,” declared Google’s chief legal officer David Drummond. Wow.

Of course, many questions remain. Was this a PR gambit to obscure other reasons for quitting China? Will Google actually quit China? I’ve heard this last one already from Chinese and American disbelievers, but the key questions seem more like “Will Google turn around in a year and quietly start censoring stuff after taking this stand?” and “Will the Chinese government agree to let google.cn be uncensored?” The answer to both seems almost certainly to be “no.”

While the free speech and cybersecurity dimensions to this are obviously huge, one important immediate implication is to foreign business in China. Google, a synonym for innovation and probably the most admired corporation in the world, applied its outsize leadership to “detonate the China corporate communications script,” as William Moss of Imagethief put it, along with a few other scripts too. Google’s move is a direct challenge to the rules by which foreign firms have learned to do business in China, which is that the government must be accommodated in its demands and its will is usually final, no matter how fickle. You know, the whole authoritarian thing.

Screenshot of Google’s homepage yesterday afternoon, displaying the four famous Chinese inventions: paper, gun powder, printing and the compass. An intentional dig at the state of innovation in China today? h/t WSJ China Journal.

Deference to the Chinese government, justified by the conventional wisdom that paying such a “China price” is always worth it, has unsurprisingly encouraged China’s economic chieftains to demand ever greater concessions from foreign companies.  Whether it’s haranguing Google, the Rio Tinto saga, government backtracking on derivatives deals signed with U.S. investment banks, excluding foreigners from the wind turbine market, or just maintaining a devalued currency in a global economic slump, Beijing has at times gone so far as to brazenly dismiss the notion foreign companies should have an equal playing field when doing business in their country. In short, the Chinese government hasn’t been afraid to jack the “China price” up really high when it suits them.

Make no mistake: This “we’re not going to take it!” moment against the government’s attitude, so shockingly radical to anyone with business in China, was aimed in part to upset (and maybe overturn) the unfair business environment for foreign corporations. If Google’s announcement was not intentionally on behalf of the entire foreign business community, it has clearly since received their blessing. Google apparently discussed its decision with the U.S. government, raising question about whether the move was encouraged or sanctioned by the Obama administration as part of a larger strategy to pressure China on trade, human rights, etc.

The crucial thing going forward is what foreign companies who feel abused will now do, considering no one else can leave the China market in protest. One question is whether the foreign business community, or sectors within that, will create a united front and collectively bargain for equal protection and other international legal norms. Google’s move has opened up cover for a wide range of aggrieved foreign companies to come together, perhaps under the leadership of a chamber of commerce or with home government backing. As the Green Dam incident of this summer shows, the Chinese government is responsive to such forceful collective action.

Yang Jianli, a Tiananment dissident and Harvard Kennedy School fellow, called for the business community to develop “principles of engagement, similar to the Sullivan Principles, which were created for dealing with apartheid-era South Africa.” Yang was envisioning principles that would demand a free Internet, which is a great idea save the fact the slightest allusion to apartheid would be way off and counterproductive in China’s case. What about something similar for all foreign businesses, some kind of declaration that capricious and unfair treatment of foreign companies is unacceptable? While the politics would be exceedingly tricky and this would be a disproportionate response at present, the Google retreat might signal it’s time people began thinking about such measures. The status quo for foreign businesses in China is neither acceptable nor set in stone.

One more plausible and less ambitious route would be to start by pursuing the case against internet censorship from a trade law perspective, as this paper from the European Center for International Political Economy seems to believe is possible. This is certainly something worth investigating, and I will be reading up on this soon.

For what it’s worth, and this generally supports the business environment point, my sense is Google found operating in China especially intolerable. I think the importance of this factor in Google’s decision is being obscured by the focus on freedom of speech. Google’s entire time in China was characterized by constant harassment by Chinese governmental people and their allies. This ranged from constant and serious disputes on micro-managing Google’s search results, to serious hacks, to petty hectoring, like the state-run media’s campaign last June to unfairly single out Google on the nightly news for displaying pornographic search results. (Last June Chinese netizens exposed as fake a man-on-the-street TV interview where a university student claimed his roommate’s pornography habits had had dire consequences, making him “absent-minded.” The interviewee, whose story sounded suspiciously contrived, was soon revealed to be a CCTV employee).

This picture is corroborated by a few extended conversations I had with a Google China employee in early 2009, where the first topic that came up was his office’s complete exasperation with the Chinese government. It seems for whatever reason (Baidu’s close government connections included), the Chinese government really had it in for Google.

More to come on this topic.