Google May Shut Down China Unit in April

Bloomberg News | March 19, 2010

Google Inc. may pull out of China on April 10, China Business News reported today, citing an unidentified Chinese sales agent for the company.

The search engine may announce its exit on March 22, the Shanghai-based newspaper reported, citing an unidentified Google China employee. It may also reveal plans for its China workforce on the same day, according to the report.

The company hasn’t confirmed the April 10 date for its pullout, the newspaper cited the sales agent as saying. Tokyo- based spokeswoman for the company, Jessica Powell, declined to comment on the report.

Google challenged the government of the world’s most- populous country in January by threatening to allow all search results to be shown on its Chinese-language Web, including references to Tibet and the 1989 Tiananmen Square crackdown. The two sides have since been in talks to resolve the issue.

Google told its China employees after the January announcement that they were given the option of moving to the company’s U.S. headquarters or working for its Asia-Pacific operations should a pullout happen, the report said.

That suggests an exit from the Chinese market would only include the closure of Google.cn, rather than a complete end to Google’s business in China, the report said.

‘Unable to Return’

A pullout by the U.S. company would mean it will probably be unable to return to the world’s biggest Internet market by users, Peter Lui, formerly the company’s financial controller for the Asia Pacific region, said in an interview.

The public manner in which Google announced its intention means it may have “burnt bridges and they’ve burnt the Google brand in China,” Lui, 45, said yesterday. “There is no way Google can ever come back.”

The Mountain View, California-based company said it decided to stop censoring content after discovering its computers had been hacked from within China. Google said its systems had been targeted by highly sophisticated attacks aimed at obtaining proprietary information, as well as personal data belonging to Chinese human rights activists who use the company’s Gmail e- mail service.

At least 20 other international companies in technology, finance and chemicals were similarly targeted, Google said at the time.

The New York Times reported Feb. 18 that the origins of the attacks had been traced to Shanghai Jiaotong University and Lanxiang Vocational School in eastern China’s Shandong province. The reports are “totally groundless,” said Qin Gang, a spokesman for China’s Foreign Ministry.

Investigation

McAfee Inc., the second-largest maker of computer security software that has been exploring the attacks with larger rival Symantec Corp., said this month it had discovered at least six incidents in which the computer systems that companies use to house valuable intellectual property had been accessed. Security research firm ISEC Partners Inc. said the attacks Google reported employed skills that were “much greater than most enterprises are equipped to deal with.”

Speculation that negotiations had faltered intensified after the government said last week the plan to stop filtering at its Google.cn site was irresponsible. Some of Google’s advertisers in China have been advised to switch to rivals including Baidu Inc.

Critical Content

China censors online content it deems critical of the government by shutting down Web sites based in the nation and blocking access to overseas sites including those of Facebook Inc., Twitter Inc. and Google’s YouTube. Authorities also censor media through state ownership of all newspapers, television and radio stations.

The Chinese service started by Google in 2006 limits search results to comply with government restrictions, such as blocking access to sites that discuss Taiwan or Tibetan independence, the outlawed Falun Gong spiritual movement and the Tiananmen Square military crackdown on pro-democracy protesters.

The prospect of a Google pullout sent ripples through the market, with Baidu’s shares climbing 46 percent since the Jan. 12 announcement. Google has lost 4.1 percent in the same period.

Google earned sales of 2.27 billion yuan ($333 million), from China in 2009, according to Analysys International.

China has 384 million Internet users, according to government data, more than the total U.S. population. EMarketer Inc. in New York said the number may grow to 840 million, or 61 percent of the population, by 2013.

‘Lion’s Share’

Baidu, China’s biggest Internet search engine, will pick up “the lion’s share” of Google’s search business should the U.S. company leave, Nomura Holdings Inc. analyst Jin Yoon wrote in a Jan. 13 report. Tencent Holdings Ltd., operator of China’s biggest online chat service, and Sohu.com Inc. also will gain, Yoon said.

U.S. Secretary of State Hillary Clinton said Jan. 21 that U.S. technology companies should resist censorship of the Internet, and the perpetrators of cyber attacks such as those against Google must face the consequences.

China said it opposed Clinton’s comments, which caused damage to Sino-U.S. relations, Foreign Ministry Spokesman Ma Zhaoxu said on Jan. 22. The Chinese government has said it doesn’t engage in cyber attacks and is itself a victim of breaches of Internet security.

Google’s possible withdrawal would have no bearing on the overall environment for foreign companies operating in China and would be an “individual business act,” Chinese Foreign Ministry spokesman Qin Gang said this week.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

Last Updated: March 19, 2010 03:03 EDT

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