Google (GOOG) has postponed the launch of its first mobile phones in China, a further sign of the widening consequences of its decision to challenge the Chinese government over cyber-attacks, cyber-security and Internet freedom. The company said in a statement that it was pushing back the release of Google-powered phones manufactured by Samsung (SSNLF) and Motorola (MOT) -- a release that had been scheduled for Wednesday.Mobile titan China Unicom, which like other Chinese business giants has close ties to the Chinese government, had been slated to offer service for the device, but with Google's future in that country now in doubt, the U.S. tech titan said it would be "irresponsible" to introduce the phones at this time.

Motorola has already produced 20,000 mobile phones for China Unicom's Google phone project, while Samsung has made 10,000 mobile phones, according to a source cited by Sina.com, China's largest internet portal, which relies heavily on state-affiliated news agencies for its reports.

Cascading Consequences

A Google spokesperson in China said a Wednesday launch event had been canceled and declined to say when the phone program would be restarted, according to an Associated Press report out of China. Meanwhile, a Chinese Foreign Ministry spokesperson said that Google must obey Chinese laws and traditions if it wanted to remain in the country, the government's first direct response to Google since the company challenged the Chinese government one week ago.

The Chinese government's tough stance suggests what many already suspect: There is little chance of the communist regime bowing to Google's insistence that its Chinese-language search engine be uncensored moving forward.

The Google phone launch delay is the latest in a series of cascading consequences since Google's decision last week to threaten to leave China after a massive cyber-attack originating in the world's largest country compromised its corporate security. The attack, which targeted Chinese human rights workers and political dissidents, prompted Google to announce it would no longer censor its search results in China.

In a note to clients Tuesday morning, Ian Bremmer, president of the Eurasia Group, a geopolitical intelligence group, called the Google spat with China, "the most significant development in the last ten years of U.S.-China relations -- the most important bilateral relationship in the world today."

Western Firms Face Difficulty in China

The phone controversy also suggests that while Google has reaped worldwide support for its position -- in China, people were laying flowers at its Beijing headquarters -- the financial consequences may be greater than the company had originally expected. On the other hand, Google would have had to have been stunningly naive to think its showdown with the Chinese government wouldn't spill beyond the core disputes over cyber-security and Internet freedom.

"This conflict isn't really about the great firewall," Bremmer said. "It's much more fundamental. [It's about] the relationship between corporations doing business in China and the Chinese government."

Already, the dispute has widened into a high-level diplomatic showdown, after the U.S. government announced its support for Google and said it would formally demand an explanation from China over the attacks. Cyber-security firms have traced the source of the attack to agents connected to China's sprawling intelligence apparatus.

Referring to China's unique brand of state-sponsored capitalism, Bremmer said, "insofar as it's a competitive model, with Chinese businesses that are a credible alternative to western firms (a big caveat), that model will prove increasingly problematic, even incompatible, with western investment."

Meanwhile, Google is probing whether one or more of its employees may have participated in the attack against it -- a possibility which, if true, suggests that the company could have had a Chinese government agent, or agents, working inside the company.

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