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China may be the big loser in ‘lose-lose
scenario’ of Google exit
By Joe McDonald
AP, BEIJING
Saturday, Mar 20, 2010, Page 9
China without Google — a prospect that looks increasingly likely — could mean no
more maps on mobile phones. A free music service that has helped to fight piracy
might be in jeopardy. China’s fledgling Web outfits would face less pressure to
improve, eroding their ability to one day compete abroad.
Chinese news reports say Google is on the verge of making good on a threat to
shutter its China site, Google.cn, because Beijing forces the Internet giant to
censor search results. The reports indicated that Google had, in fact, already
stopped censoring results, but searches on Tuesday for sensitive topics like
“Tiananmen massacre” appeared to still return only whitewashed results.
A Google spokesman, Scott Rubin, denied censorship had stopped and would not
confirm whether Google.cn might close.
The extent of a possible pullout from China is unclear. But on top of a local
search site that Google says it may close, services that might be affected range
from advertising support for Chinese companies to online entertainment.
“If Google leaves, it’s a lose-lose scenario, instead of Google loses and others
gain,” said Edward Yu (于揚), president of Analysys International, a Beijing
research firm.
Google says it is in talks with Beijing following its Jan. 12 announcement that
it no longer wants to comply with Beijing’s extensive Web controls. But China’s
industry minister insisted yesterday that the company must obey Chinese law,
which appears to leave few options other than closing Google.cn, which has about
35 percent of China’s search market.
Google chief executive officer Eric Schmidt said last week something would
happen soon, but Rubin, speaking by telephone from Google’s headquarters in
Mountain View, California, said no action had yet been taken.
Such a step could have repercussions for major Chinese companies as well as
local Web surfers. It would deliver a windfall to local rival Baidu, China’s
major search engine, with 60 percent of the market. But other companies rely on
Google for search, maps and other services and might be forced to find
alternatives.
China Mobile, the world’s biggest phone company by subscribers, with 527 million
accounts, uses Google for mobile search and maps. Baidu offers mobile search,
but China Mobile passed up a partnership with it earlier after they failed to
agree on terms, according to industry analysts. Millions of mobile customers
might lose access to Google’s Chinese-language map service.
PUBLIC DEFIANCE
A key issue is whether Beijing, angry and embarrassed by Google’s public
defiance, would allow the company to continue running other operations,
including advertising and fledgling mobile phone businesses in China if
Google.cn closes.
China promotes Internet use for business and education but bars access to sites
run by human rights and political activists and some news outlets. Officials who
defend China’s controls by pointing to countries that bar content such as child
pornography are stung that Google has drawn attention to how much more pervasive
Chinese limits are.
Chinese Web surfers are blocked from seeing Facebook, YouTube, Twitter and major
blog-hosting services abroad and a Google pullout would leave them increasingly
isolated.
Google hopes to keep operating its Beijing research and development center,
advertising sales offices and mobile phone business, according to one person
familiar with the company’s thinking. But that person said the company won’t do
that if it believes its decision to stop censoring search results will
jeopardize employees in China. Industry analysts estimate Google has a work
force of 700 in China.
The government says Chinese mobile phone carriers will be allowed to use
Google’s Android operating system but there has been no word on whether efforts
to sell its own phones in China might be affected. Google postponed the launch
of two phones with a major Chinese carrier due to the dispute.
Uncertainty also surrounds Google’s China music portal, a free,
advertising-supported service launched last year in partnership with four global
music companies and 14 independent labels. Industry analysts say it has helped
to undercut China’s rampant music piracy by offering an alternative to
unlicensed copying.
“Without that, are we back to, ‘piracy wins’?” said Duncan Clark, managing
director of BDA China, a technology market research firm.
The music service is run by Top100.cn, a company part-owned by Google, but can
be accessed only through Google.cn.
Top100.cn executive chairman Erik Zhang (章明基) said it is preparing for the
possibility that Google.cn might close but said his company has not been told
whether that will happen. He declined to give other details.
BEHIND THE SCENES
The biggest impact of a Google departure could lie behind the scenes, where
Chinese companies, many of them small entrepreneurs, rely on its AdWords
advertising service, Gmail e-mail and documents services.
Those might be disrupted if Beijing turns up Internet filters to block access to
Google’s sites abroad. Its US site has a Chinese-language search engine but is
already inaccessible due to government filters.
In an uncomfortable irony for Beijing, Google might suffer little commercial
loss from a pullout while China’s own companies are hurt.
The bulk of Google’s estimated US$300 million in revenues in China last year
came from export-oriented companies that would need to keep advertising on its
sites abroad even if Google.cn closes, Yu said.
“We believe the majority of revenue would still be kept on, with keyword
purchases listed on Google.com instead of Google.cn,” he said.
The loss of competitive pressure from Google also might slow Chinese development
in search and other Internet services, Yu said.
“This is definitely a bad thing for Chinese companies that want to go abroad in
the future,” he said.
Industry minister Li Yizhong (李毅中) said last Friday that China’s Internet
industry would develop without Google. But even some Chinese industry leaders
who normally toe the government line in public are warning that controls on
Internet companies and media are handicapping their growth.
Beijing has steadily tightened controls over Internet content and foreign
investment in the industry. Video sharing sites must have state-owned media
outlets as partners. People in the industry say it is getting harder to register
privately financed sites.
“Without full and fair market competition, there will be no quality, no
excellence, no employment opportunities, no stability and no real rise of
China,” said the chairman of major Chinese portal Sohu Inc, Charles Zhang (張朝陽),
in a speech in February, according to a report on Sohu’s Web site.
“How do we do this practically?” Zhang said. “The problem is complicated, but
the fundamental point is to limit the power of the government.”
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