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Google vs. China: Is Google Screwed?

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Newscom / STEPHEN SHAVER

Google went public with its demand one week ago in a blog post by Chief Legal Officer David Drummond complaining about Chinese "cyber attacks" that allegedly aimed to access the Gmail accounts of human rights activists. As a result, the company, which launched Google.cn in 2006, concluded "that we should review the feasibility of our business operations in China." Drummond laid out this strikingly stark ultimatum (emphasis ours):

We have decided we are no longer willing to continue censoring our results on Google.cn, and so over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all. We recognize that this may well mean having to shut down Google.cn, and potentially our offices in China.

That statement does not seem to leave much room for compromise. One securities analyst dubbed the move "Google's suicidal decision." So what leverage does Google have here to get China to lift censorship requirements?

"I don't think they have any leverage. The Chinese government has been pretty clear in the past that it does not cave in to outside pressure of any sort -- whether it's the president of the United States or a corporation like Google," says Michael Cusumano, a tech business expert and professor at the MIT Sloan School of Management.

Cusumano adds: "The Chinese government considers Google a pain in the ass. Google is all about information and lots of it, and security in that information. Having an open search engine like that is a problem for China. If Google leaves, I'm sure the government will be quite happy."

Google's share of the Chinese search market is about 35%, according to the Wall Street Journal. But there are alternative search providers, including Yahoo and the giant Chinese firm Baidu.

Cusumano tells us that just 1 to 2 percent of Google's annual revenue comes from China, where it has roughly 700 employees, he says. But that doesn't mean China is not a huge emerging tech market whose importance will only continue to grow.

The only upside for Google here may be a boost to its credibility, says Ralph Cossa, president of the Pacific Forum at the Center for Strategic and International Studies. "It certainly improves Google's image globally."

Cossa believes the only real leverage Google has is a public backlash against the government among China's growing middle class. But "it's not going to get the Chinese students out on the barricades demanding to get Google back," he says. "It will just be one more nail in a very big coffin."

And the noises from some in Congress and the Obama Administration criticizing China will have "about as much impact as a resolution arguing that the Chinese oughtta be nice to the Dalai Lama," Cossa says. The State Department said last week it planned to formally ask China for an explanation of Google's allegations about cyber attacks.

With Google's credibility publicly at stake, both Cossa and Cusumano tell us they won't be surprised if the company packs up and leaves. "If Google was to turnaround and say, 'China is only going to spy on half the people instead of everybody,' they're going to look kind of foolish," Cossa says.