just in in-tray, on goog / china / usa, and in so far as in/on china portion, reads abput right, imo
the announcement by google that the company will pull out of china if censorship policy is not reversed is an extraordinary turn of events. it's the most significant development in the last ten years of us-china relations--the most important bilateral relationship in the world today--and it has wide-ranging implications. i've had a number of conversations in the past week with relevant senior chinese officials, members of the obama administration, and executives from google and other american technology businesses with significant presence in the chinese market.
it's a complicated story, so i'd like to devote this week's update to that--considering the reactions of both sides, what i expect from the fight, and the implications for us-china relations.
china-google
the google-china conflict is complicated somewhat by the fact that there are competing underlying and proximate causes. first, a difficult domestic business climate in terms of google's own business in china, which has lagged against domestic search provider baidu (though google was making up ground of late). second, a censorship environment that has always sat particularly uncomfortably with google's international brand (and, indeed, the personal inclinations of google's top leadership). third, a growing cyber-security threat that culminated in broad attacks against google's gmail data centers, focusing on accounts and data traffic of key chinese dissidents and human rights activists. and fourth, a chinese government pressing increasingly hard to foster the technological/competitive growth of its own domestic firms.
google's public ultimatum makes clear they blame the chinese government for both an inhospitable operating environment and the cyber-attacks. google executives privately admit they have no idea precisely who is behind the attacks. but their presumption (generally supported by the us government) is that, given the chinese government's proven technological ability to monitor and cordon off individual accounts engaged in activities thought problematic, it could track and prevent the recent round of cyber-attacks if it wanted to. add the unprecedented sophistication of the attacks, and the fact that most of the recent espionage was directed at collecting data on chinese human rights activists. in other words, there's the issue of capacity and a motive. is the chinese government guilty beyond a reasonable doubt of directing the attacks? no. is beijing in some fashion complicit? almost certainly.
in response, google is essentially making two demands of the chinese government--first, to accept operation of google.cn without filtering software going forward; second, to put an end (or, more realistically, to sharply diminish) cyber-attacks against google.
us reaction
though privately sympathetic, the public response of the american business community has been restrained. other technology companies have far more exposure to china in their near-term business model--and therefore far more at stake--than google does. accordingly, there's a serious collective action problem. the corporates have more to gain long term by banding together and trying to pressure the chinese government into supporting a fairer, more transparent, more competitive business environment--though executives disagree strongly on assessing the extent of this china risk for their own business, complicating the prospects for cooperation. but nobody else of scale has google's combination of brand downside and limited direct near-term china exposure. given the scale of the opportunity china represents, the public business lobby is going to be largely google by itself.
having said that, there are lots of reasons why the google-china fight is likely to be much more of a watershed issue in the united states than anything we've seen in recent years. first, there's the underlying context that plays into a sharply deteriorating us-china relationship. which i've touched on in the past two weeks--high us unemployment, big chinese growth, and an election year for congress.
but then there's the significant number of constituencies in the united states that the google-china issue hits: pro-technology folks (who generally support google's position), broad free-marketeers/pro-us industry lobby (who bristle at anything that looks like unfair competition/anti-globalization from abroad), national security/homeland security groups (given the nature of the cyber-threat); and civil liberties/human rights supporters (who harbor serious problems with chinese censorship). those are four extremely varied demographics, with powerful lobbies, located all across the american political spectrum. together with the media that represent them, that's a huge swath of americans with an anti-china axe on the google issue. against essentially a decent piece of the chinese émigré community in the united states, and a few (but not all that many, given this particular issue) who think google's gotten too big for its britches.
in short, it's a tough one. the obama administration is probably the biggest mitigating force. president obama campaigned on an openness platform, so he's clearly on the google side politically. but the administration is also loath to see anything shake up the broader relationship with china. its public statements have been formulaically correct while not going out of the way to raise the problem (google executives have told me they're not particularly enthusiastic about the statements); privately, the administration has been telling google that it would like to see a compromise.
chinese reaction
in reaction to google's demands, the chinese government has made clear it will under no circumstances change its censorship policies, either for google or anyone else. beijing did show some flexibility on censorship implementation, with a senior official telling me that within a month or two we could see clarifications in the way chinese censorship policy is "managed." that didn't mean much to me technically, but google executives thought the offer might be meaningful, as part of their problems with conducting business in china has been their frustration with the lack of transparency around what chinese censorship policy actually is. essentially, western multinationals have to guess what is and isn't acceptable to beijing. china recently decided to block imdb.com, the site that hosts movie reviews. is that because avatar is outperforming domestic chinese distribution? there's no way to know.
that's a different story from cyber-security issues, where the officials gave me no deviation from the public line--it's illegal, beijing won't tolerate it, and the government will use the force of the state to prevent it from occurring. what about the attacks that google claims (and has shared data with the white house and us national security agency)? no response, other than to say that google is dead wrong when it insinuates the chinese government is behind them.
beyond that, chinese officials reiterated to me that they're increasingly unhappy with recent statements from washington. they strongly oppose the notion of a g2 and want the obama administration to drop all mention of it, because they're at a different stage of development than the united states and are not prepared to take on the global commitments required of such a role. officials also bristled at recent comments from secretary of state hillary clinton that the us-china relationship is "mature." they disagreed, and said that it's very much nascent, in flux, and unstable. they responded that the obama administration pays insufficient attention to the growing problems in the relationship and has tended to whitewash them in statements of late--instead making one-sided claims about what china "needs to do." recent pointed statements made at copenhagen (to say nothing of diplomatic "finger-wagging" at president obama) were not about di fferences in the view of the chinese delegation, but rather a growing willingness to let americans see their pique.
having said all that, chinese officials admitted that both the us-taiwan arms sales and next month's planned visit of the dalai lama to the united states are marginal, symbolic issues. they're problematic for beijing, but they don't deserve serious focus. they also asked for advice--of those i suggested (putting a cyber-security "tsar" in place on their side for a broader dialogue, and showing the american government a more serious willingness to address the issue; directly engaging with international executives on censorship policy), the one they clearly took seriously was that they should muzzle baidu executives, who took relish in public broadsides against google that weren't serious (claiming google couldn't take the competitive pressure from the chinese search engine and castigating google executives for pointing the finger at beijing). that only created bigger problems for both sides. i suspect we're not going to be hearing as much from them going forward.
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there's also the reaction from the chinese people themselves. google's fewer (though more educated) users on balance oppose google leaving out of personal inconvenience (preferring the breadth of search, lack of advertisements, usefulness of translation software, google maps, etc). but that's mitigated by a widespread perception in china, even among some of the country's most educated users, that google actually serves as an arm of the american government--providing data on searches, working closely with the national security agency, and the like. while the united states may preach a message of free markets, in reality most chinese expect big business works the way the chinese system does. why would they ultimately want the americans to have that level of access (and influence) over the chinese citizenry? in short, an ultimate decision of google to leave china will leave a minority of chinese netizens frustrated, but without a particularly sharp backlash (at least against the government...against google is another matter); the far broader popular response will be nationalist and pro-beijing.
what happens next
google's leadership has to decide whether the company is going to leave. google ceo eric schmidt has said his company is in discussions with the chinese government, but my understanding from both chinese officials and google executives is that aside from public responses (beijing welcomes all companies to do business under chinese law), china thus far has not made any direct response to google's entreaties.
google executives have told me that, having now taken a public position, they want to give the chinese government all due opportunity to respond and not take any rash steps in the interim. that's a matter of at least a month, more if they're able to engage beijing in substantive dialogue.
further, schmidt has said publicly that google is planning to keep its technologists in the country. but internally, the company is still debating whether they'll end up shutting down google.cn or pulling out all their employees. if they can't come to agreement with the chinese government, there remains a significant security/data risk for their personnel (the recent attacks implied both online espionage and real-world intelligence gathering; raising the risk that the chinese government has active sources in google's beijing offices). on the other side, closing all of google's china operations is a much more significant business decision for the company.
i expect google will indeed pull out, at least in terms of shutting down its google.cn site. it's inconceivable that china would allow google to proceed with an uncensored site. it contradicts everything about chinese policy and would trigger an uproar in chinese domestic politics. google could eventually back down and maintain a site that has limited, clearer censorship rules, but that's going to be a tough one to negotiate in terms of brand value (especially with execs saying this isn't a business decision but an ethical one). plus, in either case, the cyber-security issue is likely to become more problematic. a decision to back down that's reversed a year later following an even bigger breach of internal security would look profoundly wrongheaded.
us-china relations going forward
i remember discussing china strategy with eric schmidt three years ago. i had considered china a threat to their market strategy; schmidt wasn't particularly worried. in his view, there was a long-term battle playing out between the chinese citizens seeking access to information and the chinese government attempting to prevent them--and the great firewall of china wouldn't last long in that fight. the implication was that the chinese government would eventually be forced to recognize the futility of its policy...and google would be fine.
schmidt's was an america-centric view, authoritarian china vs. the chinese people, and the chinese people ultimately win. yet the relationship between the chinese government and its people is more nuanced. on a surprisingly large number of issues, and particularly on the google-china fight, most chinese side with their government (accordingly to recent polls, some 70% of chinese respondents believe that google needs to follow chinese laws).
this conflict isn't really about the great firewall. more and more chinese will find ways to get around that barrier--though more often to look for advertisement-free searches, gambling, and pornography than information on democracy, taiwan and the dalai lama. it's much more fundamental...the relationship between corporations doing business in china and the chinese government. this relationship--chinese state capitalism--is strongly supported by the chinese people, more so given the perceived weaknesses of the private-sector-driven free market model following the financial crisis. insofar as it's a competitive model, with chinese businesses that are a credible alternative to western firms (a big caveat), that model will prove increasingly problematic, even incompatible, with western investment.
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the cyber-security issue draws closely into this conflict, as the nature of the chinese economic system means that state espionage and business espionage are closely interlinked. china reflects almost the entirety of american concerns with cyber-security threats; given both the suddenness and the scale of the concern.
along with cyber-security, us-china relations are flaring on a couple of additional fronts. with washington pressing for additional sanctions on iran, beijing has been noteworthy in the past week for its willingness to take direct opposition--potentially scuttling the security council process. there's also another product safety flap, with toxic levels of cadmium found in chinese-produced toys. a potential health danger to children, i remain concerned that one of the biggest "fat tail" risks in the us-china relationship is the prospect of an outcry leading to restrictions on chinese exports and a populist us call for a goods boycott. bring climate change, currency, and trade into the mix, and we're going to see a serious up-tick in tensions in the world's most important relationship.
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the nationalist democratic progressive party (dpp) did particularly well in last week's taiwan's elections, which means we've seen the top of china-taiwan economic warming for at least a while. i'd love to get to some of the legislation on us financial regulations. and we're seeing bigger governance problems in afghanistan, with infighting between parliament and president hamid karzai showing yet again the limits of his rule; not a great time for the united states to lose some of its key intelligence assets in the country. hopefully i'll get to at least some of that next week.
meanwhile, my hopes and prayers for the people of haiti. it may take a natural disaster of epic proportions to bring the political spectrum together in the united states, but it's heartening to see it all the same.
yours truly,
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