Tuesday, June 29, 2010

Google seeks to appease Chinese govt.

A few months after search giant Google redirected users to Hong Kong after claiming its servers had been hacked, the company has announced has been forced to make further changes. In a move to abide by its stated promise that it was no longer willing to censor its search results at the behest of the Chinese government, Google began to redirect Chinese Internet users who arrived at Google.cn to Google.com.hk. But on Monday the company said had become clear from conversations they have had with Chinese government officials that they find the redirect unacceptable. "If we continue redirecting users our Internet Content Provider license will not be renewed," Google said on its blog. Without an ICP license, Google would not be able to operate a commercial website like Google.cn and Google would effectively go dark in China, the company said.

"That's a prospect dreaded by many of our Chinese users, who have been vocal about their desire to keep Google.cn alive," David Drummond, SVP, Corporate Development and Chief Legal Officer, said in a blog post. "We have therefore been looking at possible alternatives, and instead of automatically redirecting all our users, we have started taking a small percentage of them to a landing page on Google.cn that links to Google.com.hk ... This approach ensures we stay true to our commitment not to censor our results on Google.cn and gives users access to all of our services from one page."

On Monday Google re-submitted their ICP license renewal application based on the new approach. While the landing page will be fully implemented in the coming days and redirects to Hong Kong stopped, it is as yet unclear how the Chinese authorities will react [BBC].

China increasingly hostile

China is seen as becoming increasingly hostile to foreign companies. While Internet companies have to abide by specific rules related to censorship, others are also restricted. On Tuesday [29th June] the Wall Street Journal reported that many European companies are saying they expect the regulatory environment to worsen for foreign firms operating in China over the next two years. The annual European Union Chamber of Commerce's business confidence survey in China for 2010 shows that many European companies believe uncertainty about the regulatory environment in China undermines their otherwise positive expectations for market growth. The results of the EU survey come just months after US companies in China voiced concerns about what they perceived as an anti-foreign-investor attitude from Beijing in a similar survey [WSJ].

In fact only last week the US spoke of its concern over China's protectionist policies. Commerce Secretary Gary Locke said the US continues to have "legitimate concerns with China's approach to economic growth" [Telegraph].

"US companies operating in China are not granted the same degree of openness and fair treatment that foreign companies, including private Chinese companies, receive in the US market," Locke said. Writing in the Telegraph, Malcolm Moore their Shanghai correspondent argued that China led the way in protectionism. Soon after India began to boycott Chinese made toys in February there came strong voices calling for retaliation. Moore reported of one hysterical outburst from Long Guoqiang, a fairly senior official at a State Council think tank. 

Trade war looming

China should prepare for a trade war Long exclaimed. "We should draw up a list of retaliatory products [to boycott]," he said. "Personally I also think the retaliation does not need to be limited to goods. The retaliation could be more extensive," he told a conference in Beijing. Long said that China should even consider a military response. "The best way to deal with trade protectionism is to have a nuclear threat," he said. 

While Long's comments of a military response should not be taken too seriously, there is nonetheless a growing fear in the country of how a fall in exports might affect China's economy. "There's a lot of rhetoric about protectionism from the Chinese at the moment because they are very very afraid," says Joerg Wuttke, the head of the European Chamber of Commerce in China, "But they have very little leverage when it comes to talking about trade. From our perspective they buy very little from Europe."


Indeed a visit to any supermarket or shopping mall will reveal how few foreign products are available. While there are many foreign chains, most of the products are made in China. The Hard Rock Café in Beijing sells a wide range of memorabilia, yet nearly everything is made in China. There are a few exceptions however. Shot glasses on sale at the Hong Kong branch of the Hard Rock Café are made in Taiwan and a Zippo lighter is made in the US. But badges, T-shirts, bandannas and other items of clothing are all manufactured on the mainland.

In supermarkets food is almost entirely home produced. Where western products are available they are expensive. The foreign brands that are cheap, such as Coca Cola or Marlboro cigarettes, are usually manufactured in China under licence. 

In Europe and the US the opposite is true. Toys, electronic goods and clothes are mostly imported from China. Food comes not only from local producers but from all corners of the globe. Meanwhile the manufacturing base in the west dwindles. And as western companies attempt to expand their businesses in China they are thwarted by complex rules. 

No European company has ever been allowed to buy a major Chinese company, and a $2.5 billion [£1.75 billion] bid by Coca Cola for Huiyuan, the Chinese juice maker, was stalled by Beijing. In 2006, Chinese trade barriers cost European companies £19 billion of lost business. "German companies have tried to buy steel mills and ball-bearing factories but have failed. I hope the situation changes, but there are lots of national interests in China and I cannot see any signals of change yet," Joerg Wuttke says.

China faces many social problems and economic failure would bring instability to a country which is already seeing an ever widening gap between the rich and poor. It is understandable that the Chinese authorities want to maintain a strong economy but by excluding foreign companies is likely to create consternation amongst the buying public abroad. Product safety was an issue amongst many consumers in the last few years. China's not playing the rules or within the spirit of the rules laid down by the World Trade Organisation will only fuel calls for boycotts of Chinese made products. In a global economy there should be a level playing field. Recent reports suggest the field is very lumpy with many holes.

tvnewswatch, London, UK

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