If China Can Make Google Heel, Other U.S. Firms Will Pay a Price

Google's unfolding confrontation with China may be nearing critical mass. Its efforts to stand its ground involve high stakes for both foreign businesses and governments facing Beijing's ire. China's leaders will draw important conclusions about whether they have essentially unfettered sway over outsiders, as over their own subjects.

In an accommodating gesture to Beijing last week, Google's mainland China searchers must now specifically "click" on a link to be redirected to Google's Hong Kong facilities, which are not subject to Chinese censorship.

Since Google first threatened to exit the China search market unless censorship obligations were lifted, and then explicitly repudiated the censorship in March, mainland-originated searches had been automatically routed to Google Hong Kong.

Google's license to operate in China expired June 30, with Beijing considering its renewal application. Google's recent, essentially insignificant concession might be enough for China to extend the license, thus allowing both sides to avoid an all-or-nothing outcome, certainly for Google.

Just as Henry IV casually embraced Catholicism to become France's King, noting that "Paris is well worth a Mass," Google perhaps concluded, in Internet terms, that "China is well worth a click."

Censorship alone, however, is not the issue, but rather the broader problem of unfettered, apparently limitless Chinese regulatory and trade restraints, and the heretofore largely supine reaction of foreign firms and governments.

Despite the conciliatory move, China responded by partially blocking some of Google's mainland search functions. Moreover, Beijing sycophants quickly rejected the one-click model. "Google needs China more than China needs Google," as one Chinese professor at Oxford put it, toeing the customary Chinese line.

In contrast, the New York Times, editorially siding with free expression if not necessarily with American business, rightly observed, "a censored Google is worse than no Google at all." Censorship alone, however, is not the issue, but rather the broader problem of unfettered, apparently limitless Chinese regulatory and trade restraints, and the heretofore largely supine reaction of foreign firms and governments.

Although not directly related to Google's struggle, other businesses are now publicly expressing their own discontent. Shortly after Google's March refusal to censor searches, GoDaddy.com rejected new regulations requiring disclosure to Chinese authorities of considerable personal data from prospective Internet domain holders.

As the largest global registrar of Internet domain names, GoDaddy's decision not to register new Chinese Web sites, although purportedly unrelated to Google, was nonetheless another significant outburst of "just saying no" to Beijing's control efforts.

Last week, General Electric CEO Jeffrey Immelt said he felt Chinese "hostility" toward foreign investors, and complained, "I really worry about China. ... I am not sure that in the end they want any of us to win or any of us to be successful."

Immelt's assessment was nearly a 180-degree turn from his boastful assessment last year: "I don't think anybody has played China better than GE has."

Immelt's comments echoed Joerg Wuttke, former head of the European Union Chamber of Commerce in China, who said in April, "many foreign businesses in the country feel as though they have run up against an unexpected and impregnable blockade."

Moreover, the EU chamber's just-released 2010 business confidence survey reflects earlier complaints by the U.S. chambers in Beijing and Hong Kong that foreign firms trying to do business in China faced increased discrimination in favor of Chinese-owned firms.

And ominously, on July 5, an American citizen was sentenced to eight years in prison for dealing in "state secrets" relating to China's oil industry, over personal protests from President Obama to President Hu.

Considering these various puzzle pieces together, a clearer perception emerges about China's objectives, which are both political and economic.

On Internet issues, for example, Beijing's censorship and identity requirements could force foreign firms out of China, thus affording a WTO-proof protectionist strategy benefiting indigenous companies, under political camouflage that much of the non-Western world will simply shrug off.

Beyond the Internet, nontariff Chinese protectionism comes in many forms: reverse engineering technology and then duplicating it without licensing; ignoring copyright and trademark protections; discriminatory transportation, storage and marketing regulations; harsh criminal punishments, and other techniques in a lengthy list which China seems to be mastering.

Most individual companies, even mighty global icons, or foreign business associations have until now deemed it impossibly risky or economically unacceptable to launch a head-to-head struggle with Beijing's authorities. But the issue today is whether this recalcitrance is changing, and whether China's apparent implacability is real, or rests on the shared perception that foreign business can be intimidated before a fight even starts.

That is why Google's initially routine regulatory dispute has potentially profound implications. The ramifications extend to whether capitalists in China, particularly foreigners, will perennially be mere supplicants in Beijing.

Governments in policy disputes with China should also wonder if that is forever their fate, or whether a little spine now might pay off later. As Lady Thatcher might say to Washington once again, now is not the time to go all wobbly.

John R. Bolton is a senior fellow at AEI.

Photo Credit: iStockphoto/graham heywood

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