In a previous post on this blog, Josep wrote about how China seems to be loosening its tight control over the accessibility of internet content in that country. However, with recent developments with Google in China, the direction of these changes may be in question.
After a tough year, where Google internet services were down several times in China (sometimes for unexplained
reasons), an incident recently happened which pushed Google to the limit of what they could take.
Google discovered a “highly sophisticated and targeted attack” on its systems that resulted in the theft of some of its source code. It was also revealed that this attack was part of a larger attack that targeted multiple US-based companies with internet presences in China, including Yahoo, Symantec, and Juniper Networks.
Google also found that the attackers tried to get into mail accounts of persons related to human right activities in China. The attackers were only mildly successful, but the sophistication and specific targets of the attacks were alarming. The attacks were based on a previously unidentified hole in old versions of the Internet Explorer browser. Likely, attackers infected individuals that had access to restricted parts of the Google networks by directing users to web pages with malicious code (using deceptive links in email messages).
Google had already struggled with regulations in China since releasing the Chinese version of its search engine in 2006. China has forced Google to censor their search results since they have been there. Google has been able to grab 30% of the search share in China, but search advertising has not taken off there, so they are not bringing in much revenue yet. Due to these struggles, as well as the hacking incident, Google seems to have begun to question the value of their China operations. After the incident, they announced that unless they were allowed to offer an uncensored search engine in China, they would shut down their search engine and would consider stopping all of their Chinese operations. China did not bend in response and basically said that Google would have to leave if they did not follow the rules. Further, the government denied having been part of the hacking incident.
After seeing China’s strong response (as well as a drop in their share price), Google took a less tough stance. Google’s CEO said, “We like what China is doing in terms of growth…we just don’t like censorship. We hope that will change and we can apply some pressure to make things better for the Chinese people.” Obviously, China is very important to Google in the future, but the current policies are making it hard for them to justify doing business there.
Even though Google may back down, this incident could have large implications in the near-term for foreign-based internet business in China. If companies do not feel secure operating there, they may not even enter the market, as the security risk and the cost of compliance may be too high to do business there.