What does Google “leaving” China mean for the future?

After it now became official that Google decided to redirect its China Google.cn search site to its Hong Kong site Google.com.hk and with that step effectively leaving the China mainland Search market, the question coming up is what will that mean for the future?

Firstly, I think that the decision to leave China had mostly also to do with the fact that Google was unable to gain market leadership in China. It trailed its local rival Baidu. This IMHO had from a pure business point of view nothing to do with being censored or not but simply with the fact that Google like many other US Internet companies face fierce local competition and never gained the market share that they were able to gain elsewhere in the world. That is frustrating for them no doubt and certainly played a major role in its current decision to “pull out”. In fact they did not fully pull out but left all other businesses untouched - so far.

It has to be seen now how the Chinese authorities react and if they block the Hong Kong site entirely which they of course could easily do. That they filter the content that Google Hong Kong’s search finds is clear.

Now what will this mean for the future of China’s Internet business? One will see more and more local Chinese companies gaining more market share and dominating the Chinese market. Those companies will remain local and will enjoy healthy growth not needing any expansion outside of China. While it is a bit too early to say for sure but what could well happen is that the Internet will be divided into two. A Chinese one and a non-Chinese one. This of course will isolate China from the rest of the world something that is not good one would think. Cynics might also say a Google and a non-Google dominated Internet world. The other scenario could be that ways to circumvent censorship will become dominant and that grassroots movements will eventually practically open the Chinese Internet. That I doubt though. People assuming that - like Sergey Brin in the NYT - don’t take the huge effort into account that is being exercised by the Chinese government to control the Internet and censor website content and access. I once heard that there are more than 10,000 people employed in Beijing who search and then filter the Internet for unwanted website content. What happened now though with Google’s announcement is that the world is shown and talks about this Great Firewall of China and as a side effect “China is evil” rather than “Google is evil” is being spread.

Mr. Brin added that efforts by China, Iran and other governments to control online speech — a “half an Internet” approach, he said – will likely fail eventually. “I think that in the long term, they are going to have to open,” he said.

So how to deal with this is what every company needs to decide for itself. I for my part see this all a bit different. Having actually lived two years in the region (China and HK) I think one needs to be pragmatic and you cannot judge China with the rules that count in the US or Europe. We all know that also democracy in the Western world has its strong limitations, just looking at the heavy lobbying work that is so typical in Washington (I am sure also Google has its folks there as well). This shows that money has a huge influence on political decisions, something that people too often simply forget also because they depend on it.

The Google decision to redirect its search was at the end more of a face saving act for them than anything that reflects understanding of the Chinese circumstances and dealing with it in a smarter way. Pressure came up to finally do something after they noticed - and published - a sophisticated hacker attack and assumed it was Chinese government-sponsored. Now one needs to know that practically all business in China is in some way controlled by the government and large Chinese corporations are to a good part government-owned (e.g. Huawei). So I am sure that Google’s remaining business will also do business with the Chinese government or they will do no business. Of course that’s not in Google’s hands but the Chinese. Practically I think they won’t do much business there anymore and could as well simply entirely leave.