Google Pulling Out of China? Don't Bet On It

Google on Tuesday took a very bold stand by saying it would no longer censor search results on its Chinese site, and may even consider closing operations in that country. The search giant made this decision after the company revealed it, as well as 20 other large companies, were the targets of cyberattacks that Google says can be traced back to China.


Google said the primary goal of the attacks directed at the search giant appeared to be an attempt to access the Gmail accounts of Chinese human rights activists. Responding to the attacks, David Drummond Google's senior vice president for Corporate Development and Chief Legal Officer wrote in a blog post on Tuesday that, "We [Google] have decided we are no longer willing to continue censoring our results on Google.cn...We recognize that this may well mean having to shut down Google.cn, and potentially our offices in China."

That's a courageous statement for Google to make, and leaves very little maneuvering room for the search giant to find a compromise with the Chinese government. But is it likely that Google would stop doing business in the largest emerging economy in the world? I don't think so. Here's why.

Google Needs Markets

Like any corporation, Google requires new markets to expand its business, and you can't get much bigger than China. The country's economy is growing at an incredible rate, and will undergo the largest population migration in history from rural areas to more affluent urban environments as China's economy continues to expand.

Internet Use in China

Looking at the raw numbers, the Chinese market is just too large to ignore. As of 2008, China had a little less than 300 million Internet users out of a population of 1.3 billion people. It's unlikely that all 1.3 billion people will be raised out of poverty and buying computers any time soon, but with so many potential customers and an expanding economy there is massive potential for tech companies doing business in China.

Just take a look at the mobile device market. In June 2008, state-owned China Mobile, the world's largest mobile phone service provider, reported it had just over 600 million phone subscribers--a report by the Guardian on Monday contradicts that number saying China Mobile has just 518 million subscribers.

As of 2008, only 117.6 million of those subscribers had access to the mobile Web, but the market for Internet-capable devices in China is exploding. China Mobile is moving aggressively to cover China's urban areas with 3G networks, and major tech companies like Dell, Motorola, and Apple are bringing, or have already brought, Internet-capable devices to China. If the mobile space truly is the next battlefront for Internet companies, 600 million people--almost double the population of the United States--are a whole lot of eyeballs that could be doing searches, clicking on AdSense ads, sending Gmail messages, and more.

So you have to ask yourself, does it seem likely that Google would give up such a massive market to Chinese search leader Baidu, as well as Yahoo China and Microsoft's Bing?

Getting Out Won't Stop the Attacks

Google's decision to change the way it does business in China stems, at least in part, from the cyber-attacks it endured last month. But just pulling out of China won't stop those attacks. In October, a report commissioned by a Congressional advisory panel made it clear that China is actively developing tools for cyber warfare and espionage. With or without Google's presence in China, the company is guaranteed to be a target for hackers of all stripes since it is such a major player in the American Internet economy.

Next Steps

So what could Google be trying to achieve in China? It's doubtful that Chinese authorities will allow Google to run an uncensored version of its Chinese Web site. But Google's declaration, along with subsequent comments by Secretary of State Hillary Clinton, could push China to pursue a more moderate course when it comes to Internet censorship. So perhaps Google would be willing to settle for a more liberalized version of the censorship it already imposes on Google.cn.

Another option could be that Google is attempting to rally western corporations to use their expanding market power in China to pressure the Chinese government for a more liberalized Internet. Yahoo has already expressed support, at least in principle, for Google's declaration, and perhaps other companies will follow suit. A coalition of western companies rallying for change could be a message the Chinese government would be hard pressed to ignore.

But a wholesale pull out from China by Google? It's entirely possible, but I'm not betting on it.

Connect with Ian on Twitter (@ianpaul).

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