- Market Commentary -

January 19, 2010 (FinancialWire) — Proposals for “getting tough” on China have flying around lately, sparked last week by the Chinese government’s recent fracas with Google (NASDAQ: GOOG), and Google’s tough response. Is Beijing worried?

What we know of the Google incident thus far raises disturbing questions. It’s not unusual that a technology company as prominent and powerful would be the victim of hacking. That such an attack would be carried out by a government isn’t really that surprising, either. Google, after all, is the biggest distributor of information on the Web; governments of all sizes feel its power, and wish to gain some measure of control. Just ask Dick Cheney.

But given China’s history of trying to have it both ways with information – openness to the extent that Chinese business and intellectual interests benefit, then extreme suppression when the government feels threatened – the latest incident with Google is part of a disturbing trend.

Google sees it that way. The company claims that the hackers in the December incident not only made off with valuable intellectual property, but may have even raided the personal information of dissidents. This wasn’t just another crude attempt at blackout, or censorship.

According to Reuters and Cnet, Google is now looking into whether the cyber-attack was an inside job.

For its part, Google isn’t taking the whole thing lying down. In the past, the company has been accused of doing just that, and rolling over whenever the Chinese government waved the heavy hand of censorship in the company’s direction. In 2006, Google launched a special Chinese version of its site that helpfully alerted local users of content censored from search results — content that had been deemed offensive by the Chinese government.

But now it’s different, we are told by the official Google blog. In a piece titled “A New Approach To China,” the company said it will review its business operations in China in light of an attack that, while it “at first appeared to be solely a security incident–albeit a significant one–was something quite different.”

According to Google, the Chinese attackers sought not only intellectual property but information on Chinese dissidents, including the Gmail accounts of Chinese human rights activists.

Cynics are questioning Google’s resolve. After all, Google is not the #1 name in search in China. Home-grown Baidu has that honor. The company needs to keep its presence in Chinese search, though, if it is to grow its brand in what could become the most lucrative technology market in the world. Good luck selling Android phones, cloud software, pay per click marketing schemes and other Google-branded things in China if you leave the search market, in other words.

But others seem to think that alienating a global behemoth like Google, which has a good reputation as an enlightened, progressive company, would bring shame to the Chinese. And shame is a powerful motivator for a country that wants to bill itself as the new “open for business” superpower in every way possible: Intellectually, economically, culturally etc.

We’ll see. When it comes to speculating on the Chinese government’s capacity for shame, the cynics usually win.

[Go to http://www.financialwire.net/?s=philip+holmes to see more commentaries by Philip Holmes.]

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Today in History: Captain Charles Wilkes circumnavigates Antarctica, claiming what became known as Wilkes Land for the United States in 1840. The first electric lighting system employing overhead wires began service (Roselle, New Jersey) in 1883. Howard Hughes sets a new air record by flying from Los Angeles to New York City in seven hours, 28 minutes, 25 seconds in 1937. The Scrabble board game debuted in 1955. Snow falls for the only time in the history of Miami, Florida, in 1977. In 1993, IBM announced a $4.97 billion loss for 1992, the largest single-year corporate loss in United States history.

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