Chinese officials offered their first reaction Thursday to Google's (GOOG) decision to reject Chinese censorship -- and potentially quit the country altogether -- as the dispute over free speech and internet security threatened to create a geopolitical rift between the United States and China.

"China's Internet is open and the Chinese government encourages development of the Internet," Foreign Ministry spokeswoman Jiang Yu told Reuters. "China welcomes international Internet businesses developing services in China according to the law," she said. "Chinese law proscribes any form of hacking activity."%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%% On Wednesday, as Chinese citizens laid flowers at Google's Beijing office, U.S. Secretary of State Hillary Rodham Clinton issued a statement expressing "serious concerns" about the massive, China-based cyber-attack at the root of the controversy, and demanded answers from China's leaders. "We look to the Chinese government for an explanation," Clinton said. "The ability to operate with confidence in cyberspace is critical in a modern society and economy."

On Tuesday, Google revealed it had been the victim of a massive cyber attack that compromised its corporate security. Even worse, the company said an investigation showed the targets of the attack were Chinese human rights activists, whose Gmail accounts were hacked.

A Bold Challenge

On its face, Google's move is an audacious challenge toward China's communist government, which has guided the huge nation through a decade of rapid growth, but also faced criticism over its human rights practices, media censorship and lack of democracy. But typically, those complaints come from Western governments or Interest groups, not corporations. In fact, most Western companies are so desperate to crack the Chinese market that such a defiant gesture is almost unthinkable.

That's changed now.

"In a world in which we are so used to public relations massaging of messages, this stands out as a direct declaration," Jonathan Zittrain, professor of Internet law at Harvard Law School and co-director of Harvard's Berkman Center for Internet & Society, said in comments reported by the San Jose Mercury News, Google's local newspaper. "It's amazing," he said.

In fact, Google's move is nothing short of an invitation to other companies to stand up to China's communist rulers. Which Western company will be next to stand up to this gang of authoritarian cadres who hold dominion over 1.3 billion people? Will Microsoft, Yahoo and other companies operating in China match Google's human-rights stance?

As tech-watchers, journalists, human rights workers and government officials digested Google's threat to leave China, there was a palpable sense that something very important had happened, not only in technology, but also in the history of contemporary international relations. There was a sense among internet freedom advocates that a global campaign had been launched.

Google's "China Doctrine"

As of Wednesday morning, Google had already begun removing censorship filters from several controversial keywords, according to sources reached by Brian Pitz, an Internet analyst at banking giant UBS.

As a result, Google.cn may be disabled within days.

By Wednesday evening, Google's new policy of refusing to work with Chinese censors was being referred to as Google's "China Doctrine."

Human rights groups and internet freedom advocates hailed Google's denunciation of China's repressive censorship policies. Danny O'Brien, International Outreach Coordinator at the Electronic Frontier Foundation, a digital rights group, praised Google for its "brave and forthright declaration to provide only an uncensored Chinese language version of its search engine."

Human Rights Groups Rejoice

"Google has stepped up to this challenge," O'Brien wrote. "Now it's up to technologists and policymakers to build the tools and to apply the political, economic and cultural pressure to allow citizens in repressive regimes to seek, receive and impart information and ideas through an uncensored Net and maintain their access to the collective knowledge of humanity that it makes possible."

Rebecca MacKinnon, a China expert who specializes in technology, called Google's decision "tough" and predicted that the company "is going to have a great deal of of difficult fallout." Still, she said that Google is living up to its famous credo, "Don't be evil," which co-founders Larry Page and Sergey Brin have tried to embed in the company's DNA since its inception.

"They are sending a very public message -- which people in China are hearing -- that the Chinese government's approach to Internet regulation is unacceptable and poisonous," MacKinnon said.

But even as Google's decision drew praise, some observers questioned the business logic of the move. "We admire the company's principled stand, but our job is to analyze the investment impact," Broadpoint AMTech Internet analyst Ben Schachter wrote in a note to clients Wednesday. "In the near-term, the financial impact is relatively insignificant. However, the obvious concern is that China's growth has been solid and its market potential is enormous."

Whipped By Baidu.com

Google's China operation contributes only 2% to its annual revenue of $22 billion, and the company is getting whipped by Baidu.com, which controls 60% of the Chinese web search market.

Pitz, of UBS, observed that Google's decision may cost it dearly in the future, as China continues its rapid growth and internet access becomes more ubiquitous there. "If Google were to exit China, we believe this represents a significant lost growth opportunity in the long term," Pitz wrote on Wednesday. "China is the world's largest Internet market with roughly 298 million users, with only 22% of the population penetrated."

But for top Google executives, led by co-founder Brin, a Russian immigrant whose family escaped the Soviet Union, the China-based attack on human rights advocates was simply more than they could tolerate.

In China itself, the news of Google's decision was heavily restricted by the communist government, which controls the internet via its infamous "Great Firewall of China." Still, word trickled into the country via citizens who use proxies and other means to evade China's web blockers.

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