Is Google the Omen of a U.S.-China Trade War?
Courtesy of TIME, by Bill Powell / Shanghai
When Google finally ended the suspense, it did so by stating the obvious. "Figuring out how to make good on our promise to stop censoring search [in China]," wrote David Drummond, the company’s chief legal officer, on the company’s blog last night, "has been hard." For more than two months, ever since its Jan. 12 announcement that it would soon stop censoring its search results in the country with the largest number of Internet users in the world, the California giant was headed for a direct clash with the authorities in Beijing, who have been repeatedly unambiguous in their stance. Censorship is the law of the land in China, and Google had to abide by it or else "suffer the consequences," as an official put it last week.
Google’s decision is to route all of the traffic on its Chinese search engine, Google.cn, to its Hong Kong based site, Google.com.hk. The company has added simplified Chinese characters to the site (Hong Kong Chinese uses traditional characters for reading and writing) and a color-coded list of features (such as shopping, maps, music) which are still available, all of which make it now look "a bit like an eye test," as Shen Liling, a young Shanghai netizen, says. (See pictures of China mourning the potential loss of Google.)
But the practical result was that, for a few hours at least, search results were no longer censored. On Tuesday morning, March 23, in China, netizens could type in "Falun Gong," the banned religious cult, and what popped up was far different than what had come up just the previous night. (Among other things, the official Falun Gong website showed up in search results.) So after nearly four years of doing business in China, Google has lived up to its campaign promise. It is no longer censoring its search results for Web surfers behind China’s Great Firewall. But it took the Chinese government less than 24 hours to start censoring searches itself: a search for "Falun Gong" from the mainland later in the day prompted only a "Web page not available" response.
For that short span, the Hong Kong route was a relatively elegant solution to the dilemma in which the company had found itself. Xinhua, a government-owned news service, quoted an unnamed official in Beijing’s State Information Council calling the move "totally wrong. [Google has] violated its written promise. We’re uncompromisingly opposed to the politicization of commercial issues."
From Beijing’s standpoint, there’s a lot of that going around at the moment. For the past two weeks, China has been in a rhetorical firefight with the U.S. about the value of the renminbi (RMB) vs. the dollar. President Barack Obama called on Beijing to let the RMB more accurately reflect market fundamentals — most economists believe the RMB is undervalued relative to the dollar — because doing so would help boost U.S. exports to China. Premier Wen Jiabao said China had no intention of doing that anytime soon because so many of its exporters are barely profitable as it is. And in response to calls in the U.S. Congress for tariffs on Chinese goods should RMB revaluation not occur, China’s Minister of Commerce, Chen Deming, bluntly told the Washington Post on Sunday that in the event of a trade war, the "American people and U.S. companies" would suffer more than China.
Just before Google moved its China site to Hong Kong — a switch that came in the dead of Monday night, China time — Beijing had given some indication that it understood the time was coming for some adult supervision, at least when it comes to the overall U.S.-China relationship. Wen met with a group of foreign businessmen in Beijing the same day. His tone, participants in the meeting say, was calm and relatively conciliatory. He told them China had no interest in "trade and currency wars" and pointed to a forthcoming meeting in Washington — the so-called bilateral Strategic and Economic Dialogue — as a moment both sides could use to bring things down a notch. "The dialogue in May will be very important," Wen said. "It’s an opportunity to address the problems between the U.S. and China." As a participant said after the session, "There was no finger-pointing or threats … He obviously understands very well the stakes involved and that everyone needs to calm down a bit."
How calm Beijing will be when it comes to Google’s latest move is an open question. "We very much hope that the Chinese government respects our decision," Drummond said in his statement on Google’s blog, "though we are well aware that it could at any time block access to our services." The odds are that it will probably come to that, and even if for some reason the authorities allow Google.cn to operate via Hong Kong, e-commerce executives in China who advertised on the search engine appear glum. One noted that Drummond’s own statement acknowledges that the complicated nature of the switch means a slowdown in service is possible and that "some products [might be] temporarily inaccessible as we switch everything over." That, the Chinese executive said, "is the best-case scenario. The worst is that they are completely blocked in China at some point. So there’s no good scenario here from our standpoint."
Nor, frankly, does there appear to be one for Google. Financial analysts all note that the revenue the company makes in China amounts to just 1% to 2% of its global revenue. So for now, from a strict bottom-line standpoint, the China contretemps is immaterial. But they also note, as Bank of America–Merrill Lynch analyst Justin Post wrote, that in the longer term, the decision to effectively exit the market with the most Internet users on the planet "doesn’t seem to make a lot of business sense."
Last month, Google co-founder Sergey Brin told attendees at a technology conference in California that he still wanted "to work within the Chinese system and provide more and better information." At heart, he added, he’s "an optimist." Moving his Chinese search engine to Hong Kong is Brin’s shot at trying to live up to those words. In the same meeting, however, he acknowledged that "a lot of people think I’m naive." The Chinese government, it’s safe to say, will now be the judge of that.
