How Google changed the rules of dealing with China

It is rare for a big foreign company to issue an ultimatum to the Chinese government. It is rarer still when that company openly states that it is ready to quit the Chinese market - and potentially lose out on the world's biggest growth prospect - if it does not get satisfaction from Beijing. But that is exactly what Google, the internet giant, has done. It has overturned the rules of doing business in China, which has long been seen as too big and too important for commercial companies - and many countries - to upset.

On Tuesday evening Google announced that it would no longer censor the results from its Chinese web search engine, as required by the Beijing government. This means that issues deemed sensitive by the Communist Party - the Tiananmen Square massacre of 1989, Tibetan separatism and the Dalai Lama, for example - are filtered out. The reason for the change of heart was said to be a "highly sophisticated and targeted" cyber attack originating in China aimed at stealing software from Google and other companies, as well as hacking into the e-mail accounts of Chinese dissidents.

The Google statement did not say that the this dual attack was the work of the Chinese authorities, but by linking it to "attempts over the past year to further limit free speech on the web" it left no doubt that it saw the assault as at least encouraged by Beijing. The US government was quick to demand answers from the Chinese, demonstrating that this was not just a commercial dispute. It could be the opening of a new battleground between China and the West over free speech, after years of diplomatic fudge around Beijing's sensitivities.

Reaction has been sharply divided. One Chinese blogger accused Google of acting like a "spoilt child" - a view that might have been shared by most of the foreign business community until recently. All foreign companies know that the intellectual property they bring into countries such as Russia and China is fair game for industrial espionage. Similarly, Google knew when it opened for business in China that the Communist Party did not share its earnestly proclaimed goal, which is to "organise the world's information and make it universally accessible and useful". The policy of China's leadership remains state control of information which it believes could harm its monopoly on power or weaken the Chinese state. The Chinese leaders are keen students of the collapse of the Soviet Union, where relaxing control of information (combined with severe financial crisis) destroyed the Russian party's legitimacy.

Some have accused Google of dressing up a commercial failure in sanctimonious hand-wringing. Despite steadily gaining share of the internet search market in China, Google was making little money there, and its China operation had been on the rocks since it lost its boss in September. Talk of freedom of information was merely, these critics say, a way to close down an operation that was not going anywhere.

In fact, there are good reasons to believe that Google actually means what it says and that this move, far from being the result of a fit of pique, could turn out to be a far-sighted gambit. Sergey Brin, co-founder of Google, has never hidden his discomfort at the compromises required to do internet business in China, and it seems he lobbied for a showdown. He was born in the Soviet Union, but his father took the family to America in 1979 after being denied the career he wanted by state-imposed Jewish quotas on places in physics departments. He has seen that Google's five-year presence in China has not loosened the grip of the Communist Party, but rather it is more than ever determined to tame the Web, even at the cost of cutting China off from the rest of the world.

There is not usually a value attached to sanctimonious hand-wringing, but there could be in this case. Google finds itself under attack in many parts of the world. Rupert Murdoch, the global media baron, has accused Google of stealing his newspapers' copyrighted material. Authors complain that Google is scanning their books without permission. The clean white Google search screen, which used to be seen as a trusty guide to the chaos of the Web, now has a sinister side. We are all aware that Google knows more about our tastes than our nearest and dearest do, and is prepared to use this information to sell advertising. The organisation that has as its motto the physician's oath, "Do no evil", is actually a quoted company locked in battle with Microsoft and Apple for global dominance.

A stand-off with China will burnish Google's lost image as a fighter for right. This will go down well in the US, where Barack Obama's visit to China in November is recalled as a humiliation. He was given little chance to say anything to the Chinese people, and his few public comments were kept largely hidden. In short, China's transformation from plucky developing country to economic superpower that will one day threaten US dominance seems to be speeding up. This was certainly the case at the Copenhagen climate change summit in December, where China was not afraid to stand in the way of Mr Obama's proposed deal.

At the same time, foreign companies say it is harder to get business in China in the face of a new, more nationalistic atmosphere. Business people, of course, would never complain about getting too much business. But there are now grounds - commercial and political - for a more robust dialogue with China, and Google may be leading the way. [e-mail]