US/CHINA: U.S. Holds Fire in Google-China Feud

Publisher Name: 
Wall Street Journal

U.S. government officials and business leaders were supportive but wary of taking sides in Google Inc.'s battle with China, a sign of the delicate tensions between the growing superpower and the West.

The White House said it would wait to comment until China responded
to Google's threat to bolt from China, over censorship and alleged
cyber spying. Commerce Secretary Gary Locke called Google's charge that
it and dozens of companies were hacked "troubling" and encouraged China
"to work with Google and other U.S. companies to ensure a climate for
secure commercial operations in the Chinese market."

Secretary
of State Hillary Clinton said Google's allegations "raise very serious
concerns and questions," and that "we look to the Chinese government
for an explanation." But later, a State Department spokesman said the
dispute was within "the range of issues" that normally define
U.S.-China relations, adding that it "is a broad, it is a deep, it is
an expanding and durable relationship."

Chinese government officials didn't respond to Google's provocative
declaration, posted on its Web site Tuesday night. A report by China's
state-run Xinhua news agency quoted an official at China's State
Council Information Office saying authorities were seeking more
information on the statement.

Still, Google's move threatened to add to a growing list of disputes
between the U.S. and China. Tensions have run high over the nation's
trade imbalance and China's currency, as well as the push for a global
climate-change agreement. This week, China tested a missile-defense
system in a move widely viewed by Washington as a response to an
expected U.S. weapons sale to Taiwan.

U.S. and European officials have been trying to gauge China's
willingness to cooperate on a range of issues in coming months,
especially the West's push to secure United Nations Security Council
backing for new economic sanctions on Iran aimed at curbing Tehran's
nuclear program.

"All of these tensions are taking place at a time during which China
is rethinking what constitutes its national interests and how to secure
them," said David Finkelstein, a China specialist at the Center for
Naval Analyses in Virginia. "I see these things playing out against
this larger context."

Google's move also put pressure on large multinationals, at a time
when many are feeling their own tensions in China. Google said its
internal investigation showed at least 20 other companies were
affected. People familiar with the attack say at least 34 companies in
the Internet, finance, technology, media and chemical sectors were hit
by the cyber attacks. Only Adobe Systems
Inc. has publicly verified an incident so far. Another company,
Rackspace Hosting Inc., says it was victimized as part of the attack on
Google.

On Wednesday, rival Yahoo
Inc. said it is "aligned with Google," issuing a statement that
condemned the attack while declining to comment on whether it was
targeted. Yahoo, which came under fire for providing information to
Chinese authorities that led to the arrest of a journalist, sold its
Yahoo China business to Alibaba Group in 2005 and doesn't manage it,
but retains a 39% stake.

Microsoft
Corp., which also offers search and email services, said it wasn't
targeted in the attacks cited by Google. But Steve Ballmer, its chief
executive, questioned during a briefing whether they were unique. "It's
unclear what's going on there," Mr. Ballmer said of Google's
disclosures. "Every large company is subject to various attacks, from
pros to hackers, and around the globe every day. Certainly we are."

Dozens of companies such as Morgan Stanley, Apple Inc. and Marriott
International Inc., which do business in China, declined to comment on
how the Google move may affect their strategies. Others, including
Boeing Inc., McDonald's Corp. and General Electric Co., said the
situation won't change their dealings with China.

A few were outspoken. "The cyber attacks are not an issue and they are not on our priority list," said General Motors
Corp. China Group President Kevin Wale. "We understand the rules of
China. We make a lot of effort to try and understand the rules so we
may get along with the government more easily than others."

Still, Google's unexpected move reflected growing unease among some
executives at the compromises that doing business in China sometimes
require, especially agreeing to government interference that wouldn't
be tolerated elsewhere. Google and other U.S. search providers, for
instance, have agreed to filter search results on Chinese sites at the
behest of the government, a stance that has drawn heated criticism from
human-rights activists.

"Everybody feels that it's not related to my business," says Jörg
Wuttke, head of the European Chamber of Commerce in China. "But when
one after the other happens, you wonder what the heck is going on
here."

Assiduously courted in the 1980s and '90s, foreign businesses now
complain that the official line has shifted, with younger bureaucrats
growing more nationalistic and skeptical of the value of letting in
foreign companies, Mr. Wuttke says. Last year, foreign executives said
bidding practices for wind energy were rigged to exclude foreign
companies.

When the Chinese government in June tried to force personal-computer
makers to include Web-filtering software known as "Green Dam" with all
new PCs in China, foreign business groups representing scores of major
technology companies publicly criticized the move and called on China's
leadership to reconsider. Authorities announced an indefinite delay to
the plan on the eve of its July 1 start date.

Later, a similar group of companies and business groups banded
together to decry-again publicly-government rules that state agencies
buy technology products containing Chinese intellectual property in a
bid to boost local suppliers. That issue remains unresolved.

Companies say these problems are endemic to doing business in China.
Ron DeFeo, chief executive of Terex Corp., a manufacturer of cranes and
construction equipment, said the government has a strong voice in every
part of business in the country.

Mr. DeFeo, who says his company does between $300 million and $500
million in business in China annually, said the government has blocked
acquisitions he looked to make and has limited his ownership of certain
businesses.

Though he hasn't had experiences similar to Google's, he said
Wednesday that intellectual-property issues are problematic in China.
"IP issues are big," he said.

Two years ago, he said, he had a customer call for parts for a
500-ton crane which he says he later learned hadn't been manufactured
by Terex, despite sporting the company's name. "Every company should
stand up for what it believes is important to its enterprise, and
Google doing such is important because they are defending their turf,"
he said. "What's good for Google might not always be good for everyone."

Indeed, many experts are skeptical whether Google's move will change
anything. "I don't think you're going to see a major change," said Hal
Sirkin, a senior partner at the Boston Consulting Group. "China is such
a huge growth opportunity that few U.S. companies will want to shut
that door completely when there's money to be made. There has already
been a lot of negative publicity about China-censorship there is
well-known. None of these things are secret. This is how the world
works-China is playing hardball."

Michael Cusumano, a professor at the MIT Sloan School of
Management, said he doubts Google's move "is going to start a
bandwagon.... I think the dollars will motivate against these other
companies following suit."

Still, he added, "All of the eyes of the world are on Google right
now," he said. "They have planted the idea that someone can stand up
and say we are not going to take this anymore to the Chinese
government. And somebody has to be first."

-Jessica E. Vascellaro contributed to this article.

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