Google Shuts China Site in Dispute Over Censorship/Google Faces Fallout as China Reacts to Site Shift

Google Shuts China Site in Dispute Over Censorship
By MIGUEL HELFT and DAVID BARBOZA
Copyright by The New York Times
Published: March 22, 2010
http://www.nytimes.com/2010/03/23/technology/23google.html?emc=na


SAN FRANCISCO — Just over two months after threatening to leave China because of censorship and intrusions by Chinese hackers, Google said that it would close its China-based Web site and instead direct Chinese users to a Hong Kong-based uncensored version of its service, which may get blocked in mainland China.

In a blog post, Google also said that it would retain much of its existing China operations, including its research and development team and its local sales force.

The stunning move represents a powerful slap at Beijing regulators but also a risky ploy in which Google — one of the world’s technology powerhouses — will essentially turn its back on the world’s largest Internet market, with nearly 400 million Web users and growing quickly.

“Figuring out how to make good on our promise to stop censoring search on Google.cn has been hard,” David Drummond, Google’s chief legal officer, wrote in the blog post. “We want as many people in the world as possible to have access to our services, including users in mainland China, yet the Chinese government has been crystal clear throughout our discussions that self-censorship is a non-negotiable legal requirement.”

Mr. Drummond said that Google’s Hong Kong-based search engine would provide mainland China users results in simplified Chinese and was “entirely legal.”

“We very much hope that the Chinese government respects our decision,” Mr. Drummond said, “though we are well aware that it could at any time block access to our services.”

Google’s decision to scale back operations in China ends a nearly four-year bet by the company’s founders and top executives that Google’s search engine in China, even if censored, would help bring more information to Chinese citizens and loosen the government’s controls on the Internet.

Instead, specialists say, Chinese authorities have tightened their grip on the Internet in recent years. While other multinational companies are not expected to follow suit, some Western executives say Google’s decision is a symbol of a worsening business climate in China for foreign corporations and perhaps an indication that the Chinese government is favoring home-grown companies.

Despite its size and reputation for innovation, Google trails its main Chinese rival, Baidu.com, which was modeled on Google, with 33 percent market share to Baidu’s 63 percent.

The decision to shut down its China-based search engine will have a limited financial impact on Google, which is based in Mountain View, Calif. China accounted for a small fraction of Google’s $23.6 billion in global revenues last year. Still, abandoning a direct search engine presence in the largest Internet market in the world could have long-term repercussions and thwart Google’s ambitions to be a global superpower, analysts say.

Beijing has not yet responded to Google’s decision, but government officials have scolded Google in recent weeks insisting that the company must comply with the law.

Some Western analysts say Chinese regulators could retaliate against Google by blocking the English site entirely, just as it blocks YouTube, Facebook and Twitter.

Supporters of Google have praised the company for taking a principled stand and effectively refusing to operate a censored Web site here, one that limits free speech and deletes information about democracy and human rights issues.

But other specialists said it was a foolish business decision that has unnecessarily embarrassed Beijing and one that could make it difficult for Google to continue operating other parts of its business in China.

In China, many students and professionals say they are extremely disappointed by Google’s decision to close its Chinese language Web site. They are about to lose access to the company’s vast resources, they say.

Last January, when Google initially threatened to leave China, many young people there placed wreaths at the company headquarters in Beijing as a sign of mourning.

At that time, Google said it had grown frustrated with complying with government censorship rules and that hackers based in China had stolen some of the company’s source code and even broken into the Gmail accounts of Chinese human rights advocates.

The attacks were aimed at Google and more than 20 other American companies, the company said. While Google did not say the attacks were government sponsored, the company said it had enough information about the attacks to justify its threat to leave China.

People, inside and outside of Google, investigating the attacks have since put the number of companies that were targets at more than 30, and have traced the attacks to two universities in China: Shanghai Jiao Tong University and the Lanxiang Vocational School.

The universities and the Chinese government have denied any involvement in the attacks.

At the time of its announcement, Google said that its decision might well result in its having to shut down its China-based search engine, Google.cn, or leaving the country. In subsequent days, however, Google said that it hoped to preserve as much of its business in China as possible. In addition to its search engine, the company has a staff of about 600 that includes highly paid engineers and sales people, and a fledgling mobile phone business.

After serving Chinese users through its search engine based in the United States, Google decided to enter the Chinese market in 2006 with a local search engine under an arrangement with the government that required it to purge search results on banned topics.

But since then, Google has struggled to comply with Chinese censorship rules and failed to gain significant market share from Baidu.com, a Chinese site that was modeled on Google but got its start here.

The decision to enter China, was also hotly debated in the company, and Google has come under criticism for cooperating with China’s censors. Not surprisingly, when the company said it would no longer abide by China’s censorship rules, human rights groups hailed the announcement, saying that Google’s stand should be a model for other American companies.

Beijing did not immediately release a statement on Google’s decision to shut its Chinese language Web site Monday.

The fate of Google’s operations in China is now unclear.

The company would like to maintain a research and development arm here to tap this country’s huge corps of engineers and to market other products here.

The decision to leave China will have only a limited financial impact on Google in the short term. Google does not break down revenue by country, but people familiar with the company’s business in China said that its quarterly sales were in the vicinity of $150 million in the most recent quarter, which ended Dec. 31. Globally, it had $6.67 billion in revenue in the same period. Much of Google’s revenue in China comes from ads that Chinese companies place on Google’s sites in the United States and elsewhere.

But the fallout from the decision could affect Google over the long term, as the Chinese Internet market continues to grow quickly.

Google is not the first American Internet company to stumble here. Nearly every major American brand has arrived with high hopes only to be stunted by government rules or fierce competition from Chinese rivals.

After struggling to compete in China, Yahoo sold its Chinese operations to Alibaba Group, a local company; Ebay and Amazon never got traction; and Microsoft’s MSN instant messaging service badly trails rival Tencent.

Google’s departure could present an opportunity for Baidu, whose stock has soared since the confrontation between Google and China began. It could also give a chance to Microsoft, a perennial underdog in Internet search, to make inroads into the Chinese market. Microsoft’s search engine, Bing, has a very small share of the market.

Many analysts say the government has favored and aided Chinese Internet start-ups, but that those businesses have also out maneuvered American companies.

Inside Google, the decision to pull out is widely believed to have been championed by Sergey Brin, a co-founder, who was born in the Soviet Union and is particularly sensitive to the issue of censorship. The decision by Google to enter China in 2006 was hotly debated internally, with Mr. Brin advising against it, while fellow co-founder, Larry Page, and chief executive, Eric E. Schmidt arguing for it.

Early this year, company executives acknowledged that their bet that Google could help open China had failed.

“We were looking at an environment that is more difficult than it was when we started,” David Drummond, Google’s chief legal officer said in January. “Far from our presence helping to open things up, it seems that things are getting tighter for open expression and freedom.”

David Barboza reported from Shanghai and Miguel Helft from San Francisco.



Google Faces Fallout as China Reacts to Site Shift
By MICHAEL WINES and JONATHAN ANSFIELD
Copyright by The Associated Press
Published: March 23, 2010
http://www.nytimes.com/2010/03/24/technology/24google.html?hp


BEIJING — As Google began redirecting tens of millions of Chinese users on Tuesday to its uncensored Web site in Hong Kong, the company’s remaining mainland operations came under pressure from its Chinese partners and from the government itself.

For weeks, Google had been holding out hope that the Chinese government would allow it to keep its pledge to end censorship while retaining its share of China’s fast-growing Internet search market.

But the government has shown no sign of budging. Mainland Chinese users still could not see much of the unfiltered Hong Kong search results Tuesday because government firewalls either disabled searches for highly objectionable terms completely or blocked links to certain results. That had typically been the case before Google’s action, only now millions more visitors were liable to encounter the disrupted access to an uncensored site.

Beijing officials were clearly angered Tuesday by Google’s decision to close its Internet search service in China and redirect users to the Hong Kong site, a move that focused global attention on the government’s censorship policies, and there were signs of possible escalation in the dispute.

China’s biggest cellular communications company, China Mobile, was expected to cancel a deal that had placed Google’s search engine on its mobile Internet home page, used by millions of people daily. In interviews, business executives close to industry officials said the company was planning to scrap the deal under government pressure, despite the fact that China Mobile has yet to contract with a replacement.

Similarly, China’s second-largest mobile company, China Unicom, was said by analysts and others to have delayed or killed the imminent introduction of a cellphone based on Google’s Android platform. One major Internet portal, Tom.com, already had ceased using Google to power its search engine.

Technology analysts and the business executives, who demanded anonymity for fear of retaliation, said that Google might also face problems in keeping its advertising sales force, which is crucial to the success of its Chinese language service.

Several held out the prospect that the government could shut down the company’s Chinese search service entirely by blocking access to Google’s mainland address, google.cn, or to its Hong Kong Web site. As of Tuesday, users who go to google.cn are automatically being sent to the Hong Kong address, google.com.hk.

“It’s going to boil down to whether authorities feel it is acceptable for users to be redirected to that site without having to figure it out themselves,” said Mark Natkin, managing director of Marbridge Consulting, a Beijing-based technology research firm.

At the same time, Mr. Natkin said that the government might still be wary of agitating loyal Google users in China, who tend to be highly educated and vocal. “To block Google entirely is not necessarily a desirable outcome for the government,” he said.

In northern Beijing on Tuesday, a few Chinese passers-by laid flowers or chocolates on the large metal “Google” sign outside Google’s office building, The Associated Press reported.

The two sides had been at loggerheads since early January, when Google said it would end the voluntary censorship of its China-based search service in response to attacks by Chinese hackers on its e-mail service and its corporate database. Two months of sporadic talks failed to bridge the divide between Google and the Chinese government, which insists that its citizens’ access to the Internet be stripped of offensive and some politically sensitive material.

The government denounced Google on Tuesday, calling its decision “totally wrong,” and the state-run news media accused Google of politicizing the Internet by trying to foist Western content on Chinese users.

One Western official who spoke on condition of anonymity said that China now speaks of Internet freedom in the context of one of its “core interests” — issues of sovereignty on which Beijing will brook no intervention. The most commonly cited core issues are Taiwan and Tibet. The addition of Internet freedom is an indication that the issue has taken on nationalistic overtones.

Google said in a blog posting Tuesday that Chinese officials had never wavered in negotiations from their insistence that Google censor its search results.

The Beijing business magazine Caijing reported last week that Google had employed Brent Scowcroft, President George H. W. Bush’s national security adviser, to ask the Chinese for direct talks in January. Chinese officials said on Tuesday that the two sides held two face-to-face meetings in January and February, and Caijing reported that the second meeting went poorly.

One Chinese businessman said in an interview on Monday that talks “broke down completely” at the end.

Google executives decided by Monday evening to keep the firm’s non-search business operations on mainland China intact, a Western official briefed on the discussions said. Google’s decision to redirect Chinese search requests to Hong Kong — rather than scrap the Chinese service entirely — apparently was made final only on Monday, despite exhaustive reviews, the official said.

Google China employees were still going to work at the headquarters in Beijing on Tuesday. Some engineers in the research and development department appeared confident that the department would not be shut down anytime soon, said one employee, speaking on the condition of anonymity.

Within the offices, though, employees were wondering whether the Chinese government would make a move to block Google.cn or other Google products.

A Beijing Internet entrepreneur and author of the technology blog digicha.com, Bill Bishop, called those fears well founded. He said on Tuesday that Google’s withdrawal amounted to “an amazing public slap in the face to the Chinese government.”

“The Chinese are very serious about pushing their soft-power agenda,” he said. “Google just put a big hole in that sales pitch, and I think they know that. So the idea that Google can take out its search business and leave everything else, and China will just forgive and forget — that’s very much not how the Chinese government works.”

David Wolf, a technology consultant and author of the Silicon Hutong blog, said he was more optimistic that the government would continue to allow Google to operate its non-search businesses on the mainland.

Were Google’s Chinese search business to vanish, he said, the company would still have valuable interests inside China. Its growing research and development center allows it to tap talent that cannot easily travel to the United States, he said. And Google’s advertising business is used not just to place ads on Google’s Chinese service, but to market Chinese companies worldwide.

“Over time, that’s going to grow, not shrink,” he said, adding that Google’s advertising also serves the government well because it promotes Chinese business globally.

Google’s license to publish material on the Internet, a requirement in China, is expected to expire within a few weeks. If it is not renewed, features currently still running on Google’s “.cn” address, including video, music and maps, must be displaced as well, said Dan Brody, who was Google’s first hire in China in 2005 and now heads the Koolanoo Group, a Beijing-based Internet media investment firm.

That move, in turn, would affect Google’s commitments to partners from whom it licenses content for mainland users. “So they’ve still got a whole mess of legal and technical issues to work out,” he said.


Edward Wong, Xiyun Yang and David Barboza contributed reporting from Shanghai, Miguel Helft from San Francisco and Steve Lohr from New York.