Will Google really pull out of China?

Kaiser Kuo at SXSW 2010

It's been two months since Google announced its intention to stop complying with China's internet censorship laws but so far, beyond the single blog post that announced its change in strategy, nothing more has been said on the topic, at least in public, by the Californian internet giant.

At South by Southwest in Texas this week, Kaiser Kuo, former director of digital strategy for the Ogilvy & Mather advertising agency in China, gave an illuminating talk that looked at the history of Google and other Western internet firms in China, their relations with the Chinese Communist Party (CCP), and likely outcomes of the current dtente.

Google's blog post about its change of heart regarding China was followed very quickly by a combative speech by US Secretary of State Hillary Clinton, which explicitly endorsed Google's position. According to Kuo, conservative forces in the CCP assumed this was not a coincidence.

In response, the CCP issued only bland boiler-plate statements about how companies operating in China must comply with local law, and if anything Google has had an easier time than you might expect in the last two months. Google Docs and Google Groups, two services which the CCP has blocked in the past, have been unblocked, for instance.

Why the wait?

According to Kuo, the long hesitation on the part of the CCP is due to the increasingly complex relationship between the Chinese government, people and the internet. In China, the internet is very much becoming the de facto public sphere.

Some of China's netizens are often extremely nationalist and believe the government should take a stronger line against Western internet companies, especially in light of Clinton's speech.

However, a good number are pro-Google, and while the CCP can appease the nationalists by talking tough on another issue such as Taiwan or Tibet, for a number of tech-savy urbanites, Google and censorship is their issue "it's how they're defining themselves," according to Kuo, and it's being conscious of this audience which is stopping the CCP lashing out at Google.

Some Western commentators have characterised Google's move as a retreat from China, but Kuo showed that since 2000, when it first started offering Chinese-language search on Google.com, the company has built up a sizeable and very identifiable audience.

In part, this is because Google's approach to operating in China was not as black and white as simply capitulating to the CCP's desire for it to censor results. It was very transparent about the fact the results it presented for instance, with a message in Chinese on each page saying that certain content was omitted owing to local laws.

It also took real pains to protect users, avoiding the mistakes Yahoo made, such as locating servers inside China. This meant Yahoo could be forced, by the authorities, to hand over data on activists such as Shi Tao, who is serving ten years in jail for an email he sent using Yahoo mail.

Google also protected the physical safety of its Chinese employees. All Chinese companies have to have individuals who are named and liable for its actions, and in Google's case they were always in California or Hong Kong.

Nothing to sneeze at

As a result, the company started to gain the respect of the techno-savvy urban elite, and built a market share of around 35 per cent, with around $300 to $400 million a year in revenue.

As Kuo put it "this is absolutely nothing to sneeze at." Its users were, compared to local rival Baidu, more urban and wealthier.

In both terms of market share and audience demographics then, if Google leaves China, it is walking away from a profitable and desirable business all the more so when you consider there are currently 384 million internet users in China more than the entire population of the US.

Taking it slowly

Given the fact it's high stakes for both the CCP and Google, it's perhaps not surprising there has largely been a strange and significant silence since Google's original blog post.

Kuo thinks Beijing realises it has nothing to gain by pushing Google away and being overly hostile, hence the silence. The ball is very much in Google's court, yet it's clear they're making preparations to decamp.

Kuo pointed out that while there are pros for the hardline argument within the CCP, in that it appeases nationalists and saves face, there are significant cons.

The rulers of China are largely technocrats and engineers, and reports they've commissioned have claimed Google closing would be a setback to China's own technological progress. Then there's the backlash from Google's urban elite audience, and of course, the damage to China's international image.

Finally, it would cede a monopoly in search to Baidu and for all the fact they're communists, in other technology industries such as the mobile phone market, the CCP has shown it likes competition.

The worst case scenario is that Google departs in an atmosphere of acrimony, and the CCP retaliates by blocking Google.com. Kuo thinks this unlikely, and that the more likely moderate outcome is Google shuttering Google.cn but offering Chinese-language search from Google.com, along with carrying on running sales and mobile R&D from inside China.

The best case scenario he laid out was that it's possible Google.cn will stop censoring results and still stay. Kuo pointed out Google is very much a web 1.0 company, in that it links to static content elsewhere, and recently, the CCP has been far more interested in censoring web 2.0 sites, such as social networks as these are the places which allow rapid dissemination of information and organisation of people things which the CCP recognises as dangerous to its control of power.

Success for Google?

Kuo finished his talk by saying that when Google went to China in 2005 it argued for engagement. If it was hoping to engage the CCP, then its time in China must, he argued, be judged a failure, as internet censorship has worsened.

If, however, it was to engage with Chinese internet users, then it was very successful Google succeeded in creating a company that became a part of the Chinese internet landscape and that will be missed.

He concluded by asking what drove Google to this all or nothing gambit? He admitted a strategy of nuanced engagement is resource intensive and Google faces a lot of government relations issues all around the world. Perhaps it decided it could not afford to fight a battle with the CCP every month, and this resulted in a binary decision tow the line or cut their losses.