Google’s China conundrum: stand against censorship pits principles against business priorities

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Google’s convoluted search for China compromise

SAN FRANCISCO — Shedding China’s shackles on free speech is proving to be easier said than done for Google Inc.

The Internet search leader is still censoring its results in China a month after Google’s leaders took a public stand against Chinese laws that require the removal of links to Web sites that the government deems subversive or offensive.

Citing the sensitivity of the talks, Google officials won’t say how the negotiations have been going since the company issued its Jan. 12 threat to shut down its China-based search engine and possibly leave the country altogether. Google is demanding that the government tear down the so-called “Great Firewall” that seeks to keep China’s citizens from finding politically sensitive information and images.

Google’s top lawyer, David Drummond, initially said that Google would take a few weeks to meet with government officials before deciding what to do. But Google officials now say the company might parse its Chinese search results for several more months while it steers through a political and cultural minefield in search of a compromise with the ruling party.

Google’s willingness to keep its censored search engine running for now is a signal that Chinese leaders haven’t been as unyielding in the private talks as they have in public statements demanding obedience of the law, said Internet analyst Colin Gillis, who follows Google for BGC Financial.

“It’s probably a positive sign,” Gillis said. “Google wants to find a way to stay there and the Chinese government doesn’t want Google to leave because that would be a black mark on them.”

Even so, a compromise may still prove difficult because neither side wants to be seen as backing down from its principles. Each side would have to find a way to concede without appearing to capitulate, in keeping with the Chinese custom of “face saving.”

To complicate things further, both the Chinese government and Google appear to be grappling with conflicting priorities.

China’s ruling party recognizes that it needs technology innovators such as Google to help fuel the country’s robust economic growth, but the government fears losing control if its citizens could read and see anything they want.

The tension within Google arises from the idealism of its founders, Sergey Brin and Larry Page, and its more practical, business-minded CEO, Eric Schmidt. Brin and Page, who combined still own a controlling interest in Google, have never felt comfortable about censoring search results in China. Although he didn’t like the restrictions either, Schmidt has always seemed more willing to do whatever it takes to remain in such a potentially lucrative market.

“We remain quite committed to being there,” Schmidt said about China three weeks ago, adding that staying will require operating under “somewhat different terms than we have.”

Gillis and other analysts doubt China will bend enough to allow a completely unfiltered search engine. If that holds true, Google insists it will eventually shut down its China-based search engine, Google.cn, even though that could cost the company billions of dollars in ad revenue during the next decade.

As a fallback position, Google would still like to keep its engineering and sales teams in China, so it could take advantage of the country’s brainpower and have staff to place ads on other Web sites in China and persuade Chinese businesses to advertise on Google in the U.S.

Those goals give Google another incentive to maintain the status quo for now, even if it realizes its demands are unlikely to be met.

The talks are occurring against a backdrop of computer security concerns, politically charged admonishments and intense media attention. All of those factors have complicated matters and made it more likely that the talks will be drawn out, Susquehanna Financial Group analyst Marianne Wolk said.

An alarming security breach triggered Google’s rebellion against China’s censorship rules after four years of quiet compliance. The company, based in Mountain View, Calif., said digital bandits in China stole some of its computer coding and attempted to break into the e-mail accounts of Chinese dissidents.

The Obama administration has since urged China to lift its online restrictions and investigate the computer attacks on Google. Those demands elicited an icy response from Beijing.

Leaving China wouldn’t cause Google much financial pain initially, given that China is the rare market in which a local search company rather than Google dominates. But its absence would become more agonizing if the country’s Internet market maintains its projected growth pace. With more than 384 million people, China’s online population is already the world’s largest.

By 2014, China’s Internet ad market could range from $15 billion to $20 billion annually, up from about $3 billion now, Wolk estimated. Even if it remains behind homegrown search engine Baidu.com, Google might be able to pull in $5 billion to $6 billion of the revenue if it remains in the country, Wolk said.

With the stakes so high, some analysts are convinced that even if Google pulls out, the two sides are likely to keep talking to pave the way for the company’s eventual return.