http://www.usatoday.com/tech/news/2010-01-23-googlechina25_cv_N.htm

Google clash highlights how China does business

By Byron Acohido, Calum MacLeod and Kathy Chu, USA TODAY

BEIJING — Zhang Nanting enjoys text messaging acquaintances while he’s at the Golden Fortune Internet café here. Lately, the 28-year-old insurance salesman has been meticulous about keeping his texts squeaky clean.

“I rarely send rude, short messages,” says Zhang, citing the government’s recent crackdown on pornographic texting. “I think it’s excessive management, as I don’t know how they judge what is dirty or not.”

Zhang, like most Chinese citizens and most multinational companies doing business in China, grudgingly accepts government surveillance and censorship as a way of life. But things may be changing.

Google’s (GOOG) recent threat to pull out of China has brought into sharp relief China’s longstanding clampdown on personal freedoms and foreign companies’ access to its vast consumer market. It has continued these practices even as it revs up the capitalist-style advance of the world’s fastest-growing economy.

In China, domestic “stability” is paramount. That means zero tolerance for political dissent at a time when Chinese consumers are being encouraged to embrace technologies that let them communicate and socialize much like their Western counterparts. Similarly, China has invited major tech players, such as Google, Microsoft and Yahoo, to help nurture its economic growth. Yet it imposes censorship and other restrictions and has paid little heed to intellectual-property rights.

Analysts say this is all part of China’s drive to develop — and become the dominant supplier to — the world’s most populous consumer-driven economy, with information technology as a major component. “The government in China is determined to exercise some control over mass media and the Internet,” says Harvard law professor Jonathan Zittrain. “The aim is to keep the average Internet user pointed away from controversial content and towards approved content.”

Until Google dug its heels in, China Inc. seemed to have all the cards stacked in its favor. On Jan. 11, the search giant issued a statement complaining about invasive cyberattacks and demanding that China back off on censorship of Google’s search results. “This is the first time a big company like Google has stood up and said, ‘I have had enough of this,’ ” says Hu Yong, a Beijing-based new-media expert.

China hasn’t budged — and no one expects it to. Doing business in China has never been easy. Foreign-owned companies face a thicket of censorship, trade restrictions and tariffs, says Oded Shenkar, a business management professor at Ohio State University and author of The Chinese Century.

What’s more — not unlike many other nations engaged in multinational commerce — China uses the Internet for industrial spying, says Jody Westby, CEO of consulting firm Global Cyber Risk.

China “lies in a class by itself” in the “scope and scale of its cyberespionage operations,” says Usha Haley, analyst at the Economic Policy Institute and co-author of The Chinese Tao of Business.

Multinational tech companies, in particular, bemoan China’s insistence on controlling encryption protocols that companies use to protect sensitive data. It withholds certifications until companies conform, gaining control of the decryption codes for everyone doing business within its borders, says Shenkar.

The sum of this approach: China’s economy is roaring. Its Bureau of Statistics reported gross domestic product, the key measure of a nation’s growth, rose 10.7% in the fourth quarter and 8.7% overall in 2009. Its banking sector issued $1.2 trillion in new loans last year. By the end of October, China held $798.9 billion in U.S. Treasury notes, making the U.S. its biggest borrower.

Yet the growth comes as reforms that arose from the government’s 30-year “opening up” campaign are stalling out, says Joerg Wuttke, president of the European Union Chamber of Commerce in China. A September 2009 chamber report recounts a three-year rise in “industrial-policy interventions.” It found protectionism woven into standardization policies on products from cellphones to medical equipment, subjective enforcement of environmental rules favoring Chinese firms, and intellectual-property theft becoming a major concern.

In this backdrop, Google’s push-back could coalesce a broader shift in sentiment already underway. Many companies sense that access to Chinese markets is actually shrinking, Wuttke says. “The investment atmosphere has shifted,” he says. “It’s an indication that foreign companies are struggling.”

That’s because “China doesn’t believe in survival of the fittest. It believes in ’survival of whomever we say survives,’ ” says Anthony Migyanka, an economist and managing partner at Texas-based Mobile Money Minute.

Energizing activists

But China may be reaching the limits to that approach. On Thursday, Secretary of State Hillary Rodham Clinton proposed policies to quell censorship and ingrain freedom of expression on the Internet as a global standard. Clinton called on China to be transparent about responding to Google. She also threw down a gauntlet for U.S. corporations. “Censorship should not be in any way accepted by any company from anywhere,” said Clinton. “This needs to be part of our national brand.”

The Beijing-based Xinhua News Agency on Friday issued an official response. Chinese Foreign Ministry spokesman Ma Zhaoxu called on the United States to “respect facts and stop unreasonable accusations on China in the name of so-called Internet freedom.”

Clinton’s speech energized privacy and human rights activists, who’ve been tilting with Internet censors and hackers in China, Vietnam, Iran, North Korea and Tunisia. Clinton pledged $15 million to support “Internet freedom” projects, including helping non-profit organizations plot “circumvention strategies.”

“New technology demands new thinking about how companies and governments can each work to protect freedom,” says Elisa Massimino, CEO of Human Rights First.

China’s leaders aren’t completely immune to criticism. But for China, nothing counts more than domestic stability, which government leaders achieve by squelching dissent. Go along and you’re left alone to consume like a Westerner; resist and pay the consequences.

For the past six months, China has sent a vast region, larger than Alaska, back to the pre-Internet age. Last week, residents of Xinjiang, the nation’s Muslim northwest, were permitted to send text messages again. But international telephone calls are limited, and Internet use remains greatly proscribed, after ethnic riots in July.

Such actions remind Chinese citizens who is in control. Underground, in the dimly lit Golden Fortune Internet cafe and pool bar in Beijing’s Chongwen District, Zhang must register his ID card before logging on to one of 80 computers. Then he faces the “Great Firewall of China,” an array of official censorship tools designed to curb his surfing.

“Of course I wish I could read whatever I want,” he says, but he rarely bothers “climbing the wall” to bypass the censor’s blocks. “It’s too complicated.”

Playing along

Historically, tech giants Microsoft, Yahoo and even Google have played along to get along in China. To gain approval to launch google.cn and open a high-rise office in Beijing in 2006, the search giant accepted censorship of search queries and results, such as references to the Tiananmen Square massacre. In a speech to Houston oil executives on Thursday, Microsoft CEO Steve Ballmer said that Microsoft intends to obey China’s specific censorship requests just as it follows laws in every country.

Yahoo has done that, too. The portal company infamously forked over data to Chinese officials that in 2004 helped convict journalist Shi Tao for leaking a propaganda directive. Shi was sent to prison for 10 years.

The kowtowing hasn’t exactly paid huge dividends. Yahoo sold its China business, also in 2004, to Chinese company Alibaba, giving up day-to-day management of its China operations. Yahoo retained a 39% stake in Alibaba.

Microsoft in 2002 began investing $750 million to help seed an indigenous Chinese tech sector, including opening a major research-and-development center in Shanghai. But the software giant has no illusions about dominating the Chinese PC software market, says Matt Rosoff, tech industry analyst at Directions on Microsoft. Windows PCs already are widely used in China, but 90% run pirated copies of Windows, says Rosoff.

Microsoft figures investing in the maturation of the Chinese tech industry will help drive down the piracy rate. Over time, Microsoft hopes, millions of Chinese will begin paying for their copy of Windows, Rosoff says.

For its part, Google has quickly become a mainstay with young professionals. It has a 20% share of the Chinese search market compared with search leader Baidu’s 70%, according to China IntelliConsulting.

Chinese tech firms, such as Baidu, “are extremely scrappy,” says Kaiser Kuo, a Beijing-based tech consultant. “They’ve managed to get the notoriously frugal Chinese consumer to part with money.”

Whether Google leaves China or stays remains to be seen. “The environment in which we are operating in terms of an open Internet is not improving in China,” says David Drummond, Google’s chief legal officer. “We’re no longer comfortable censoring our search results in China, and we are reviewing the feasibility of our operations there.”

Noting Google’s respect for the Chinese people, Drummond said it will keep a Chinese-language option on its global service if it shuts down google.cn.

Meanwhile, James McGregor, a Beijing-based consultant at APCO Worldwide, says complaints about mounting restrictions — he describes it as a lot of “little things at every level … by every ministry” — are reaching a crescendo. He says there is a high level of “clandestine support” for Google in the multinational business community. Google’s protest “has the possibility of stirring up a lot of people here who depend on Google and don’t want to lose it,” says McGregor.

Much could be riding on the resolution. Will Western values factor in or will China’s tactics prevail? “The 21st century is about whether and where a converging balance will be found. Google is just the beginning,” says international lawyer Jeanne-Marie Gescher.

MacLeod reported from Beijing, Chu from Hong Kong and Acohido from Seattle. Contributing: Jon Swartz in San Francisco

www.guardian.co.uk/world/2010/jan/21/china-internet-censorship-great-firewall

China builds up Great Firewall as economy grows

• • Tania Branigan in Beijing
  • guardian.co.uk, Friday 22 January 2010 02.24 GMT

It is becoming, some people joke, the world’s largest intranet. Over the last year, creeping internet restrictions have seen some of the west’s best-known services – such as YouTube, Facebook and Twitter – put off limits to users in China by the Great Firewall. Even using proxies and virtual private networks to leap over the wall has become harder.

Beyond the humour is a serious point: that China has challenged the notion of the internet as a universal realm, floating free of nations, where the world’s citizens can gather unhindered and exchange ideas.

Optimists enthused about the net’s ability to change China. But now some are wondering whether China has changed the net. Its sophisticated and stringent censorship has shown other governments how easy it is to curb and restrict what the vast majority of their citizens see online. Of course, some evade the controls. What matters is that most do not.

“It’s hard to say that China’s internet is getting more and more independent, but obviously it has more and more Chinese characteristics,” said new media professor Hu Yong.

“For example, there are many famous foreign websites we cannot log on to. China has its own way of managing the internet.”

He added: “In the long term I believe people who use the internet in China will have a quite different direction to people using it in English, and there may even be conflicts between these two groups … There are huge cultural differences.”

While China’s economy is ever more entwined with the rest of the world, its internet appears to be disengaging. But that is not just due to censorship.

Many Chinese people are simply not that interested in outside sites. The Great Firewall is less of a deterrent than the language barrier, which is why the government is quicker to block sites with video or in Chinese than those with similar information in English. The names that dominate the web in the west, such as Yahoo or eBay, mean little here – just as Sohu or Taobao mean little to Americans.

But while few Chinese people were using Twitter prior to its blocking, such services provide a conduit between users outside the country and a small number inside who may then share information in other ways.

The depth of the Chinese authorities’ concern about controlling the information flow was expressed vividly in an essay by the public security minister late last year.

“The internet has become a primary method for the anti-China forces to infiltrate us and amplify destructive energy,” wrote Meng Jianzhu. The government has alleged that Uighur exiles used websites to incite last year’s violence in Xinjiang, though it has yet to provide any evidence.

A turf war between regulatory agencies and economic protectionism – bolstering Chinese firms – has also contributed to the sense of an increasingly separate realm. And the government is not just shutting voices out. It is also learning to burnish its image and shape public opinion via the web.

But some believe that increasing controls could yet prove counter-productive: the more they ban, the more people are affected.

And when they shut down discussion on domestic sites, people may begin to look outside for information.

“You are expanding the people who think politics matters,” said blogger Michael Anti.

“This last year has been very much a turning point – more people can now feel censorship.”

http://www.washingtonpost.com/wp-dyn/content/article/2010/01/20/AR2010012003552.html

Even a censored Internet has opened up a world for Chinese users

By Steven Mufson
Thursday, January 21, 2010; A12

BEIJING — One of China’s most popular bloggers, Han Han, posted a satirical essay this week in which he imagined headlines about China’s censored Internet in a post-Google era:

In 2011, Google, Facebook and YouTube announce their return to the Chinese market — but the news is censored, so no one finds out. The government allocates 100 billion yuan as part of an economic stimulus package to hire people to post Internet comments; it sets a target of 100 billion positive posts. After a few years, e-mail disappears and 5 million Internet-related jobs are lost, but the revived postal service hires 100,000 workers. The People’s Daily writes: “One industry was sacrificed in return for the stability of the nation, but it was worthwhile.”

To the Chinese government, however, the future of the Internet and the recent decision by Google to stop censoring its search engine here, even if it means pulling out of this populous country, are no laughing matter. Even though Han Han — high school dropout, successful novelist and race-car driver — is wildly popular, his post was quickly removed.

The government’s efforts to control and limit what Chinese citizens can read online aren’t likely to end, no matter what Secretary of State Hillary Rodham Clinton says in a speech she is expected to deliver in Washington on Thursday about the Internet. Clinton is expected to propose ways to help citizens of countries such as China and Iran gain greater access to information.

Many Chinese are still hoping that Google and China’s government avert a showdown. But Google appears pessimistic. This week it delayed the introduction of two mobile phones in the country.

Yet people here say that even a circumscribed Chinese Internet has had a liberating effect on many citizens such as Han Han and his readers — who number in the millions. That’s likely to continue both as a result of popular techniques for circumventing what’s known as the Great Firewall of China and because of the big following bloggers have.

The advertising and research firm Ogilvy China estimated last year that 47 million bloggers existed by the end of 2007 and that the number was rising by 25 percent a year. Han Han and actress-model Xu Jinglei collected 300 million hits in less than three years.

“When traditional media dominated the public opinion arena, Chinese citizens had trouble finding ways to express their ideas or views on various social issues that might involve their own interests,” said Hu Yong, an associate professor at Beijing University’s School of Journalism and Communication. “But with the advent of the Internet, Chinese netizens found outlets of expression.”

To be sure, not everyone has been left to enjoy such freedoms. In December, a Chinese judge sentenced the dissident literary critic Liu Xiaobo to 11 years in prison for his writing and for his role in a pro-democracy petition called Charter 08, which sought to rally support for political reform.

Liu appears to have crossed a line. The Chinese government prohibits people from forming their own organizations. It has tolerated greater freedom in blogs, music clubs, art galleries and day-to-day private conversations as long as they stay largely private and do not directly challenge the Chinese Communist Party’s monopoly on political power.

But the Internet has blurred the lines between private and public, and bloggers can rally followers without forming organizations in the offline world. “Discussions can influence some public policies,” Hu said. “Moreover, the Internet in China has played a role of watchdog that can’t be carried out by traditional media.”

Much of that has little to do with Google, but many analysts credit Google with contributing to greater knowledge and awareness among its users, even though its Chinese-based search engine has been complying with government requirements to delete sensitive information.

“Google brought a lot more transparency to this market just being here for four years,” said Anne Stevenson-Yang, director of Asia research at Wedge MKI, an international equity analysis firm. “They were the first ones to put a notice on their search engine saying results were not allowed to be shown.”

Although Google said last week that it would stop censoring its site, little appears to have changed.

A search Wednesday for the word “Dharamsala,” headquarters of the exiled Dalai Lama, returned 9.48 million results on Google’s Chinese search engine. The first item was Google images, featuring a photo of the Dalai Lama. The second was a blog about one person’s experience in Dharamsala. The third and the fourth were news items by mainland Chinese outlets. The fifth was a Wikipedia entry.

However, some of the other items included bulletin board postings by people supporting exiled Tibetans and items from overseas Tibetan organizations, such as the Tibetan Post. Those links could not be opened. At the bottom of the Google page, a note said: “In accordance with local laws and regulations, some of the search results cannot be shown.”

On the dominant Chinese search engine, Baidu, there were 119,000 results. The first item was “Dalai Group and Dharamsala,” an article from the Guangming Daily, a Chinese mainland publication. The second was a Baidu photo. The third was kung-fu fiction. Most other results were news items from official media.

Hu, of Beijing University, said Google had had “huge influence” by “providing good tools for a wide number of users.”

But he cautioned that bringing about political change is not an easy project: “The Internet is pushing Chinese society forward in the right direction. But it is hard to predict how long that will be.”

Researchers Wang Juan and Zhang Mei contributed to this report.

http://www.nytimes.com/2010/01/17/world/asia/17china.html

Google Users in China Fear Losing Important Tool

By SHARON LaFRANIERE

Published: January 16, 2010

BEIJING — At the elite Tsinghua University here, some students were joking Friday that they had better download all the Internet information they wanted now in case Google left the country.

But to many of the young, well-educated Chinese who are Google’s loyal users here, the company’s threat to leave is in fact no laughing matter. Interviews in Beijing’s downtown and university district indicated that many viewed the possible loss of Google’s maps, translation service, sketching software, access to scholarly papers and search function with real distress.

“How am I going to live without Google?” asked Wang Yuanyuan, a 29-year-old businessman, as he left a convenience store in Beijing’s business district.

China’s Communist rulers have long tried to balance their desire for a thriving Internet and the economic growth it promotes with their demands for political control. The alarm over Google among Beijing’s younger, better educated and more Internet savvy citizens — China’s future elite — shows how wobbly that balancing act can be.

By publicly challenging China’s censorship, Google has stirred up the debate over the government’s claim that constraints on free speech are crucial to political stability and the prosperity that has accompanied it. Even if it is unlikely to pose any immediate threat to the Communist Party, Google’s move has clearly discomfited the government, Chinese analysts say.

“The average age of Chinese netizens is still very young,” said Hu Yong, a journalism professor at Peking University. “This is a matter of the future and whether the government’s Internet policy wants to fight with the future.

“If this process goes on, more and more people are going to realize that their freedom of information is being infringed upon, and this could bring changes down the line,” he said.

Google may rank a distant second to the Baidu search engine, but its estimated 80 million users are comparatively better educated and wealthier. Surveys show that roughly two-thirds are college educated. A Beijing technology consultant, Kaiser Kuo, describes them as “a potentially very noisy constituency.”

An Internet expert who insisted on anonymity for fear of repercussions from the government said: “They have bought into the bargain of get rich, have a good job, life gets better, just don’t mess with the Communist Party.”

If Google leaves, he said, “they may start asking, ‘What’s wrong with my country that it doesn’t let me do this?’ ”

“It is not like they are going to take to the streets,” he added. “But it further erodes the legitimacy of what the Communist Party is doing. This is a group the party doesn’t want to lose any more than it already has.”

On the other hand, the Chinese government managed to cut off nearly all Internet access to an entire region of 19 million people for half a year without encountering any significant political resistance. The blackout, imposed in the western Xinjiang region after deadly riots in July, is only now being gingerly lifted.

Other Internet users argue that Google must respect the Chinese government’s policies if it wants to do business here.

“I think government control of this is quite reasonable,” said Liu Qiang, 29, a Tsinghua University mechanical engineer graduate student. “Our party needs to stabilize its governance.”

Some predict that any inconvenience caused by Google’s exit will be short-lived. “The Internet is really big,” said Wang Quiya, a 27-year-old worker in Beijing’s financial district. “Something will take its place, right?”

The government’s recent efforts to tighten Internet controls have already cost some Chinese some pleasures. In the name of rooting out pornography and piracy, Chinese authorities have shut down hundreds of Web sites offering films, music downloads, video games and other forms of entertainment since November.

Li An, a Tsinghua University senior with wide eyes and thick black braids, said she used to download episodes of “Desperate Housewives” and “Grey’s Anatomy” from sites run by BT China that are now closed. “I love American television series!” she said with frustration during a pause from studying Japanese at a university fast-food restaurant on Friday.

The loss of Google would hit her much harder, she said, because she relies on Google Scholar to download academic papers for her classes in polymer science. “For me, this is terrible,” Ms. Li said. Some students contend that even after Google pulls out, Internet space will continue to shrink. Until now, Google has shielded Baidu by manning the front line in the censorship battle, said one 20-year-old computer science major at Tsinghua.

“Without Google, Baidu will be very easy to manipulate,” he said. “I don’t want to see this trend.”

A 21-year old civil engineering student predicted a strong reaction against the government. “If Google really leaves, people will feel the government has gone too far,” he insisted over lunch in the university cafe.

But asked whether that reaction would influence the government to soften its policies, he concentrated on his French fries. “I really don’t know,” he said.

Xiyun Yang, Li Bibo and Nancy Zhao contributed research.

http://www.guardian.co.uk/world/2010/jan/13/google-censors-retreat

Google quits: Wake-up call or humiliating retreat?

Lost revenue in China and a boost to rival Baidu could be offset by growth in credibility for Google

* Jonathan Watts

* guardian.co.uk, Wednesday 13 January 2010 21.59 GMT

While Chinese netizens laid wreaths outside the Google headquarters in Beijing today a short distance away the executives of Baidu, the biggest Chinese search engine, must have been thinking of popping champagne corks.

Google’s decision to pick a public fight with the censors is almost certain to cement Baidu’s control of the world’s fastest growing internet market, in which dominance requires compliance.

While the move has won plaudits from freedom-of-expression groups, business -minded critics said Google had made a strategic error.

“This is the most stupid decision in their history,” Tang Jun, a former president of Microsoft China, told Eastday.com. “Giving up China means giving up half of the world.”

But the binning of the “devil’s bargain”, accepted by many foreign firms in order to do business in China, will have been determined by a cost-analysis taking account of brand value as well as profit.

In financial terms, Google.cn’s filtering of information on politically sensitive topics has not been well rewarded. While the Chinese internet market has expanded to 338 million people, Google’s business in China has been undermined by clashes with the censors and an uneven playing field. Guge, as the firm is known locally, has got 12%- 17% of the queries, and 33% of the income in the Chinese search market. Baidu has almost all the rest.

While Google’s 800 staff could lose their jobs now, the impact on the firm’s global revenues will be small, perhaps 1%-2% of the total. This has prompted cynicism over its motives behind the decision to champion free speech.

Rumours about the firm quitting China had been circulating since September, when Kai-Fu Lee, its former chief executive, left to set up his own venture.

Several other leading US internet companies, including eBay and Yahoo, have beaten a retreat or changed strategy in recent years after failing to challenge Chinese rivals. If Google is pushed out of this market now for adopting a confrontational stance, it could regain lost credibility overseas.

Kaiser Kuo, a consultant to Youku, a video-sharing website, said of Google’s position: “It looks like a smokescreen of sanctimony … being done to draw the eye away from the ignominy of a humiliating retreat. But I suspect their motives are more earnest. Google may have a paltry market share compared to Baidu, but this is not a market to be sneezed at.”

In the long-term, analysts said, China’s domestic market would be a loser, too.

“If Google goes Baidu will be the only giant in China’s search engine market. A monopolised market can’t be healthy,” said Cao Junbo, chief analyst at iResearch.

Google’s move also reflects badly on firms that do comply with the censors.

Hu Yong, a new-media academic, said: “Google’s market share is not very big, but their loss would definitely not be good for the Chinese market. It damages the image and credibility of the internet industry.”

Baidu declined to comment on the fate of its competitor but said it had no intention of following suit by challenging the censors. “Baidu will always go along with Chinese laws,” said a spokesman.

Yahoo, Microsoft and Cisco accept that principle, but human rights groups said Google’s revelations on the hacking and its stand on censorship could set an example.

“This is a wake-up call to the international community about the real risks of doing business in China, especially in the information communications technology industry – an industry essential to the protection of freedom of expression and privacy rights,” said Sharon Hom, executive director of Human Rights in China.

http://www.nytimes.com/2010/01/14/business/global/14western.html

Google Is Not Alone in Discontent, but Its Threat to Leave Stands Out

By KEITH BRADSHER and DAVID BARBOZA

Published: January 13, 2010

HONG KONG — Google is far from alone among Western companies in its growing unhappiness with Chinese government policies, although it is highly unusual in threatening to pull out of the country entirely in protest.

A woman examined bouquets and messages left by Google users on Wednesday outside the Internet search company’s headquarters in Beijing.

Western companies contend that they face a lengthening list of obstacles to doing business in China, including “buy Chinese” government procurement policies, widespread counterfeiting and growing restrictions on foreign investments.

Some of these obstacles are a result of China’s desire to maintain control over internal dissent. Others stem from China’s efforts to become internationally competitive in as many industries as possible.

Google’s difficulties and its strong response are indicative of a broader shift in sentiment among multinational executives in China.

“I have never seen the foreign business sentiment as pessimistic as it is right now,” said James McGregor, a consultant in Beijing. “There’s a sense China is saying, ‘We have your technology and your capital — and now we have control of the market.’ ”

Google complained on Tuesday about attacks on its computers that it said originated in China and said it was no longer willing to censor its Chinese site’s search results. It is not the first company to run afoul of the Chinese Communist Party’s fears of social instability and strong desire to keep tabs on dissidents and limit freedom of expression.

China has long restricted the sale of foreign movies, books, music and other media and continues to do so while appealing a World Trade Organization ruling in August that these policies violate China’s legally binding commitments to the international free trade system. More recently, China has sought to strengthen its domestic encryption industry — for which the government has easy access to all the decryption codes — while withholding the government certification that foreign-owned encryption companies in China need to sell their products to many users.

Jörg Wuttke, the president of the European Union Chamber of Commerce in China, said that no European Union companies had pulled out of China yet. But he said the encryption dispute would be the most likely cause if any European company withdrew in the near future.

Duncan Clark, the chairman of BDA, a consulting firm in Beijing that advises major telecom and technology companies, said that Google’s difficulties were indicative of broader troubles for foreign companies in China.

“There has been a raft of decisions and unpredictability, a kind of unpleasantness about what’s happening here,” Mr. Clark said. “There has been this received wisdom that no one can afford not to be in China, but that is being questioned now — there’s kind of an arrogance that’s characterizing government policy toward multinationals.”

To be sure, doing business in China has never been easy. Foreign companies have long complained of being cheated by joint venture partners who set up parallel businesses on the side or abscond with assets. Many other countries also have policies that favor homegrown companies, although the opportunity for industrialized countries to do so is limited because they operate under tighter World Trade Organization rules than China.

Chinese officials and academics dispute whether government policies are discriminatory toward foreign companies. Hu Yong, an associate professor of journalism and communication at Peking University, said that the government was leery of the rapid expansion of the Internet and mistrustful of private Chinese companies as well as foreign businesses.

“I think in the information technology sector, not only foreign companies are under very heavy pressure, but also private domestic companies,” he said. “The general trend is that the government wants state-owned companies to occupy major positions in this field.”

Other strains between China and the West over business matters have grown out of government policies that shield Chinese companies from international competition. These policies allow companies to grow in a large home market and prepare to export to less-protected markets abroad.

The newest frictions, particularly in the last year, have been over government procurement policy. When China joined the W.T.O. in November 2001, it promised to negotiate as quickly as possible to join the organization’s side agreement requiring free trade in government buying. But it has never actually done so, leaving the Chinese government free to use its enormous buying power to steer contracts to Chinese-owned companies.

The National Development and Reform Commission, China’s top economic planning agency, ordered national, provincial and local government agencies on June 4 to buy only Chinese-made products as part of the country’s nearly $600 billion economic stimulus program; imports were allowed only when no suitable Chinese products were available.

China has also restricted exports of a long list of minerals for which it mines much of the world’s supply, like zinc for making galvanized steel and so-called rare earth elements for manufacturing hybrid gasoline-electric cars.

Those restrictions, ranging from steep export tariffs to tonnage quotas and even export bans, have made it cheaper for many manufacturers to locate their factories in China to make sure that they have a plentiful supply of raw materials free from export taxes. In June, the United States and the European Union filed a W.T.O. case challenging China’s restrictions on zinc and bauxite exports. The Chinese government has denied wrongdoing.

China’s weak protections for patents and trademarks — and widespread counterfeiting as a result — have produced large industries that make goods in direct competition with Western competitors, but without comparable spending on research or marketing. Many Western companies have tried to respond by limiting the intellectual property that they transfer to China.

Oded Shenkar, a professor of business management at Ohio State University and author of “The Chinese Century,” said very few companies would be willing to leave a market as big as China’s, and that it might make sense only for a company like Google whose primacy rested almost entirely on intellectual property.

“The U.S. is the world’s greatest innovator and China is the world’s greatest imitator,” Mr. Shenkar said. “Google? What do they have other than intellectual property? If by being in China you’re at risk of losing it, maybe you don’t want to be there.”

But the Chinese market is so large and competitive that many multinationals choose to offer their latest technology for fear of losing market share if they don’t.

Volkswagen used dated technology in the cars that it sold here in the 1980s and 1990s, so the Chinese government asked multinational automakers in the mid-1990s which of them would offer the most advanced technology in exchange for the right to enter the market and build a factory in Shanghai. General Motors won the contest and brought its latest robots and automotive designs to China in a joint venture with Shanghai Automotive.

China has become the world’s largest auto market, yet it still limits foreign automakers to 50 percent stakes in auto assembly plants in China and assesses steep tariffs on imported cars. Chinese automakers that formed joint ventures with multinationals, like First Auto Works and Shanghai Automotive, have grown into giants that are now beginning to produce their own models, designed and built almost entirely in China.

The Chinese government has been introducing similar policies to force international companies to transfer their best technology in a long list of industries, like railroad locomotive manufacturing and aircraft assembly. It has also tried to give market preferences to domestic companies that invest in developing their own technology, even if the home-grown technology is initially inferior to foreign technology.

In November, the Chinese government notified domestic and foreign companies alike that the government would give preference in its purchases to products that used technology developed in China and had trademarks that were registered first in China. That led to a strong letter of protest by 34 industry associations to China’s Ministry of Commerce.

Mr. McGregor suggested that Google’s decision might prove to be a turning point.

“This may be seen as a real watershed,” he said. “There is a lot of feeling that the U.S. is on a downward spiral and China is on the rise.”

http://www.washingtonpost.com/wp-dyn/content/article/2010/01/13/AR2010011301168.html?hpid=topnews&sid=ST2010011300360
China’s Google dilemma: Soften on censorship or anger millions of Internet users
By Steven Mufson
Washington Post Staff Writer
Thursday, January 14, 2010

BEIJING — Google’s threat to shut down its Chinese Web site and offices over cyberattacks and censorship puts the government here in the awkward position of having to choose between relaxing restrictions and raising the ire of the roughly 80 million Chinese people who use the search engine.

Few political and Internet analysts appear to doubt that China will stick to its tough stance and reject Google’s proposal to stop censoring search results on its Chinese sites. But Google’s audience of Chinese “netizens,” a few of whom placed flowers outside the company’s Beijing offices Wednesday, is large enough to make such a reaction risky.

“This would adversely affect a lot of people, not just the technorati elite that is Western-oriented anyway,” said Kaiser Kuo, an independent technology consultant. “The government could face a serious backlash this time.”

On Wednesday, the Google story was the top trending topic on a Twitter-like microblog on the Chinese site Sina.com, with about 60,000 people weighing in before the conversation was taken down. Most commenters expressed dismay at the prospect of losing Google’s China-based service; some lashed out at the government, while others begged Google to stay. A substantial minority wished the company good riddance.

“This will make the extent of Chinese censorship a lot clearer, even to ordinary Chinese people who are not aware of it,” said Jeremy Goldkorn, a China Internet specialist who posts on Sina’s blog site and runs a Web site called Danwei, which has been blocked since July.

“Many people think Google should negotiate with the Chinese government,” said Zhou Shuguang, a blogger who has done investigative reporting across the country. He added, though, that its withdrawal would lead more Chinese to discover that China lacks freedom on the Internet. “There are no benefits to people at all if Google continues to make concessions with Chinese authorities,” he said.

The government has backed down once in the face of outcries on the Internet. Last year, it attempted to require the makers of personal computers sold here to install Green Dam, a filtering software. But it reversed itself after widespread online protests that the software slowed down and damaged computers.

Still, businesspeople in Beijing were pessimistic Wednesday about the prospect of a crack in what is known as the Great Firewall of China. “China can’t lose face over this, and it’s not going to let anybody run an open search engine,” said an industry source close to Google.

The government has shut down or blocked thousands of Web sites. Twitter, YouTube and Facebook are all blocked. Just this week, the General Administration of Press and Publication boasted of taking down 136,000 non-registered Web sites and more than 1.5 million pieces of “bad information.” It also said it had shut down 15,000 pornographic Web sites.

For now, the government has said only that it will seek more information from Google. Virtually the only official comment came in the form of a signed opinion article on the People’s Daily Web site, lacking the weight of an officially vetted unsigned editorial. The article likened Google to a “spoiled child” and said that even if it stormed out of China, it would be back because of the importance of the Chinese market.

Other pro-government online comments said that Google, which lags far behind the Chinese-based search engine Baidu, was simply dressing up a business decision in moral clothing. Baidu has about two-thirds of the market. Some independent analysts have estimated a 30 percent market share for Google, but well-placed industry sources put the number closer to 20 percent.

Dan Brody, who set up Google’s China office and now runs the Koolanoo Group, a Beijing-based Internet media investment firm, estimates that Google has annual revenue of $300 million to $400 million in China — an amount that he said pales next to the revenue it earns elsewhere.

Moreover, he said, if Google loses even a small percentage of its users in Europe or the United States because it is seen as compromising too much with China, it could lose more than it earns in the country. “From a business and moral perspective, user trust in the West is so important to them,” he said.

The company has clashed with the Chinese government since it set up google.cn in 2005. Google agreed to remove information that China’s leadership might find too sensitive but differed with officials over what should fall into that category.

Last summer, state-run media denounced the firm for providing access to “pornography.” Another industry source close to Google said that in addition to well-publicized incidents, Chinese officials were demanding weekly that items be removed. When cyberattacks were discovered, he said, “it was the last straw.” The industry sources spoke on the condition of anonymity.

If Google closes down its Chinese site, or if the Chinese government closes it down, Chinese users could still try to use the U.S.-based site. But the U.S. site works more slowly, and access to many pages is blocked.

Where would that leave the Chinese market?

The closing of Google’s China site would boost Baidu and Sina and hurt Google, industry analysts said.

Despite expensive campaigns in universities and schools, Google has had trouble catching up to its domestic competitors. Analysts say Chinese Internet users prefer the crowded, busy sites of Baidu and Sina to the no-nonsense sparseness of Google’s home page. Unlike Google, Baidu and Sina also feature bulletin boards and music-downloading services. And surveys have shown that most Chinese people have trouble spelling Google or don’t know its Chinese name, Guge, which means “valley song.”

Google China has also suffered from high turnover and was recently forced to replace some of its locally hired, Mandarin-speaking staff with managers from its California headquarters. The head of Google China, Kai-Fu Lee, who was recruited from Microsoft, quit in September.

Ironically, however, the possible departure of Google is no guarantee of harmony on the Chinese Internet. This week, Baidu’s site was attacked by hackers who said they were from Iran.

“This is a lose-lose solution for both Google and China,” said Hu Yong of Beijing University’s School of Journalism and Communication.

“For Google, China is a huge market with very big business potential,” Hu said. “For Chinese netizens, it’s a bad result as well. A search engine is very important for the free transportation of information online. And we need competition,” he added, or “the number of information sources will decrease.”

Staff researchers Zhang Jie and Wang Juan contributed to this report.

http://globalvoicesonline.org/2009/12/30/china-three-prominent-bloggers-gfwed-in-the-same-week
China: Three prominent bloggers GFWed in the same week
Wednesday, December 30th, 2009 @ 15:13 UTC
by John Kennedy  

Countries:China
Topics: Breaking News, Freedom of Speech, Internet & Telecoms
Languages: English
This post is also available in:
Français: Chine : Trois blogueurs célèbres censurés en une semaine

Following the blocking of veteran Internet essayist He Caitou’s (@hecaitou) two longstanding blogs hecaitou.net and caobian.info on December 25, renowned columnist Lian Yue (@lianyue) had yet another one of his blogs, lianyue.net, blocked on the 29th; late on the evening of December 30, Peking University new media associate professor Hu Yong (@huyong) discovered his independent blog, yong.hu, has also become inaccessible from mainland China.