Google may shut down Chinese operations due to censorship and cyber attacks

January 13, 2010

The U.S.-based multibillion dollar online search engine, Google Incorporated, has announced Tuesday in a public statement on its official blog that the company has been the victim of a "highly sophisticated" and "targeted attack" against their corporate infrastructure that they allege "originated from China."

The author of said statement, David Drummond, Google's Senior Vice President of Corporate Development and Chief Legal Officer, noted that Google was not the only multinational corporation targeted. "As part of our investigation we have discovered that at least twenty other large companies from a wide range of businesses—including the Internet, finance, technology, media and chemical sectors—have been similarly targeted." The names of these other corporations in question have yet to be released. To this end, Google states that they are "currently in the process of notifying these companies," and they are cooperating with the "relevant authorities."

Drummond goes on to say that through a separate and unrelated investigation, Google has additionally discovered that the accounts of "dozens" of Gmail users worldwide who are "advocates" of political and human rights in China "appear to have been routinely accessed by third parties" as well.

However, he affirms that "...these accounts have not been accessed through any security breach at Google, but most likely via phishing scams or malware placed on the users’ computers."

As a result of what has occurred here, Google said it has already made significant changes to the security infrastructure of its users' accounts as to prevent something like this from ever happening again.

At the same time, Google advised individual users to use more discretion while online, "We would advise people to deploy reputable anti-virus and anti-spyware programs on their computers, to install patches for their operating systems and to update their web browsers. Always be cautious when clicking on links appearing in instant messages and emails, or when asked to share personal information like passwords."

Google launched its Chinese-language search engine, Google.cn, in January 2006. The only precondition to operating in China was that the company had to acquiesce to certain censorship demands from the one-party government. When defending their controversial rationale for operating in the socialist republic, Google said "…that the benefits of increased access to information for people in China, and a more open Internet outweighed our discomfort in agreeing to censor some results."

Nevertheless, Google has still been widely criticized for this voluntary censorship of search results of topics, such as the Tiananmen Square protests of 1989, movements for Tibetan and Taiwan independence, and the Falun Gong religious movement along with other information considered harmful to the Chinese government. Some feel it goes against and is hypocritical of Google's informal motto, "Don't be evil".

In response, a spokesperson for the Chinese Consulate in New York City, Wenqi Gao, said in a phone interview to The New York Times, “I want to reaffirm that China is committed to protecting the legitimate rights and interests of foreign companies in our country.”

In contrast, Sharon Hom, the executive director of Human Rights in China said, "It's a wakeup call for the international community about the risks of doing business in China. The tendency has been for companies to keep their eye just on the benefits of doing business. But the risks are real—The risks are to our intellectual property. The risks are to our values."

Analysts noted that this move has the potential to financially hurt Google, which has a somewhat limited share of the Internet search market in China, which is dominated by the Chinese-based Google-like website Baidu. Google's shares fell just under two percent after hours to US$579.50. Meanwhile, Baidu shares rose five percent to US$406.

Harvard Business School professor David Yoffie said, "The consequences of not playing the China market could be very big for any company, but particularly for an Internet company that makes its money from advertising."

"It will hurt their profits. They get eight to ten percent of their revenues from China," said Trip Chowdhry, an analyst for Global Equities Research. "If they walk, they will eventually be invited back into China, because the Chinese people will request that. Openness always wins, but it will take some time."

Tim Ghriskey, the chief investment officer for Solaris Asset Management said, "Clearly not good news for Google and clearly not good news for consumers. You've got to think that eventually Google figures out a way to deal with this. If they do have to shut down their Chinese operations, that they would be able to reinstate them. Hopefully soon. I can't imagine that this would be permanent." He added, "China is a great growth engine for every business. It is a great opportunity for Google as well."

In response to all that has happened and what has been said, Drummond explains that this has "led us to conclude that we should review the feasibility of our business operations in China."

He goes on to state, "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."

Drummond concludes his statement by trying to assuage the situation the best he can, "The decision to review our business operations in China has been incredibly hard, and we know that it will have potentially far-reaching consequences…We are committed to working responsibly to resolve the very difficult issues raised."