Google in China and Beyond

See also: Google's China Departure India's Gain?

China has not been this proud in the last 200 years or more. But pride begets reactions, not least against those who believe their place in the world needs more acknowledgment from others, be they current top dogs like the United States or aspirants such as India.

Diverse recent issues suggest that China is beginning to irritate others in a way that not only undercuts its claims that its rise is wholly "peaceful" but could soon lead to some more overt retaliation.

"China has managed – with very little effort – to piss off practically everyone it deals with in its ascent to heaven," says a security analyst. "I've no doubt that in the interests of rebalancing the Sino-American relationship – and perhaps ramping the betting interest – national and commercial interests would be happy to see China put on the back foot. Beijing's response will also probably do the country few favors, predictably mixing outrage with menaces coupled with its traditional tactic of seeking to separate allies by rewarding 'correct' and punishing 'negative' behavior."

As far as the US is concerned, the Google episode, in which the Internet behemoth has threatened to quit China over issues of censorship, hacking and spying on dissidents by the Chinese government, stands out as potentially more of a tipping point than issues such as exchange rates and naval research rights in the South China Sea.

Two issues stand out about Google. The first is that it underlines the unequal playing field on which foreign companies operate in China whenever a local competitor is available. There is of course nothing new in that. But it needs an issue like Google to bring that home to a US public which has scant knowledge of these issues and fondly imagines that trading with and investing in China will bring it to liberal democracy.

Google may in reality be no more ethical than any other firm, but its willingness to sacrifice a China market (which it probably knows it can't win, given the predominance of China's home-grown search engine Baidu) has focused attention on issues of profits versus ethics in US business. Idealism still has a place in a moralistic US and it should not be forgotten that Google's co-founder Sergei Brin was a refugee from an oppressive Soviet Union.

As Main Street fights back against Wall Street, the issues of what America is supposed to stand for – liberty and democracy – may come back into sharper domestic focus. As well, there are plenty of members in the US Congress who first have no love for China and second would love to humble the administration of President Barack Obama over his globalist stance on both trade and diplomacy.

The Google episode also brings home to the US quite how aggressive China is capable of being, not merely in conducting spying and quiet infiltration of Google but actually appearing to attack it. Other countries, not least the US, use the internet for spying. But by making its attempts to infiltrate the US so obvious, China may have touched a nerve which will not be easily quieted. This is just the kind of high profile issue to which the US public, not to mention Congress, is prone to respond. This is not shoes or stainless steel. It mixes commerce with ethics and national security.

Of course the US – and Google – may well have known for quite a while of China's efforts to infiltrate its computers. Google's timing in announcing the effort and its own decision not to continue censoring content looks linked to the appointment three weeks ago by the US of a Cyber Security coordinator – Howard Schwartz, a one-time chief security officer for Microsoft.

For sure, many US companies – whether Silicon Valley tech leaders or buyers of cheap Chinese produce like retailers Walmart --will want to forget the Google episode and concentrate on business as usual with China. But sentiment and politics may have other ideas with trade deficits, US unemployment, exchange rates all coming into play again.

At least as significantly, China has also succeeded in infuriating India. By choosing this time, when it supposed to be focusing on the mutual benefits of rising trade, to play up its claims to much of Arunachal Pradesh, in the process blocking an ADB loan, China has reminded India of its own relative weakness. The consequence can only be to fertilize the tacit US-India alliance and make new restrictions on Chinese imports, under the guise of anti-dumping, more frequent. It has also helped shift Delhi towards a more cooperative attitude towards Bangladesh as seen in the recent state visit of Prime Minister Sheikh Hasina Wajed to India.

At the Copenhagen climate change conference, India (and Brazil and South Africa) appeared to line up with China as defender of developing countries' rights vis-a-vis the old but now reforming western polluters. But Delhi is clearly having second thoughts about the wisdom of this stance, or at least the alliance with China.

Straws in the wind included a column in the International Herald Tribune by Brahma Chellaney, a prominent professor at the Centre for Policy Research in Delhi and known for his links to India's defense and foreign ministries. Chellaney said that China had "cleverly deflected pressure by hiding behind small, poor countries" and so the world's largest polluter escaped without any binding commitments on emission cuts. India had committed a "folly," he said, by joining hands with China which on the climate issue was "not the self-touted rising superpower but a scheming power that uses poor states as a front to obstruct progress".

Whether or not other China allies feel the same way has yet to be seen. But Brazil has evidently become more cautious about how it deals with its major customer for iron ore. By arresting China-based officers of Australia's iron ore giant Rio Tinto, China may have thought that it would not only soften up Rio but also send a message to Brazil's giant, and rival supplier to the Australians, Vale do Rio Doce.

But the Brazilians appear to have seen through China's strong-arm tactics. China may be the largest market for iron ore, but they have stuck together with the Australians, not been divided, and have decided to negotiate new price setting contracts first not with China but with Japan. One reason for this is simply that China itself now has no common stand, with an industry riven by corruption and rivalries.

But the other is that trading partners are starting to see that the importance of the China market now makes it important not to allow succeed in its divide and rule tactics vis a vis suppliers. The more arrogant China's behavior, the more resistance is building at ground level even as diplomats and ministers continue to talk, for public consumption, about China as a gentle emerging giant.