What would China do?

After yesterday’s post, Google’s China Game, several lively discussions ensued. On Twitter, on emails with friends around the world, and on the telephone. The topic?

What would China do? And what will it mean?

While there was no consensus, three distinct possibilities were identified.

Nothing/ business as usual

This one is the simplest. In financial muscle comparison, Google, a business with a market capitalisation of approximately US$ 186 Billion and US$ 14.5 Billion in cash is a flea compared to the mammoth, the juggernaut called China, with a GDP of approximately US$ 4.33 Trillion with about US$ 1.6 Trillion cash reserve.

China does not really have to react to Google’s announcement from yesterday.

Denial/ business as usual

Even so, Google’s announcement and allegation of hacking is a public humiliation for China. The US State Department expressed its concern and asked for ‘an explanation’ from China. The White House too is waiting to hear from China. Ooh, remember the cultural cross-wires I mentioned yesterday?

So China responded. With a denial. Worded as follows:

“China’s Internet is open… China has tried creating a favorable environment for Internet. China welcomes international Internet companies to conduct business within the country according to law. China’s law prohibits cyber crimes including hacker attacks.”

There we have it. The denial which may provide a way for Google to salvage its quest for profits in China. And for the US to save face and carry on trading with China. Or which may not. Either way much will be discussed on radio, television and of course, the web.

Trade and technical retaliation/ business as unusual

This is the one to watch. Because this is the long-term game. Not only is the current world order in flux, but the western countries, hitherto world leaders in economic terms, are also in financial dire straits with large deficits.

China meanwhile is the largest exporter, mainly of manufactured goods to the USA, Hong Kong, Japan, Germany and South Korea amongst others. Its cash reserves aside, even the partial list of holdings of its sovereign wealth fund is impressive. China’s main buyers are faced with ailing domestic manufacturing sectors, rising unemployment at home, and aging populations.

Even so, as importing nations feel the pressure to keep standards of living at a level pegging, it seems China really has the importers by the short and curlies. Or does it (read the link in entirety)? If demand for its goods drops, can China keep exporting at the same prices? If it drops prices, the buyer nations can take it to WTO for dumping, the same forum where China has recently complained about the USA. And so on.

The possibilities are endless. It is no longer a one-time game, it is an ongoing game of chess.

Copyright: ๑۩۞۩๑~OTH~๑۩۞۩๑/ https://www.flickr.com/photos/oth313/814906385/
Copyright: ๑۩۞۩๑~OTH~๑۩۞۩๑/ https://www.flickr.com/photos/oth313/814906385/

It is plain to see that this game goes beyond what individual companies may or may not experience as non-technical or technical (pun intended) trade barriers.

It is about governments, it is about political hegemonies, it is a war of values  and freedom (May be! I am not so sure), it is the tug-of-war between the imperatives of the domestic industrial recovery and the obligations to world trade, it is (as my friend Alan wrote yesterday) about the RealEkonomik. It is about the new world order as the financial crisis, the new policy imperatives, the recovery plans and the electorates of democratic countries may drive.

I will go a step further and say: the realpolitik is the realekonomik.

Let battle commence.

6 thoughts on “What would China do?

  1. The cultural cross-wires continue with the West throwing glancing blows and then looking at the judges for an assessment of points scored. We respond quickly and don’t hear (listen to) the message. In the 19th century, did the British ever think the hand over of Hong Kong would really happen?


  2. The second possibility is more likely looking at what is at stake for Google and the reactions of the Chinese governments in the past.
    It is not just the search market that is at stake for Google since it is expanding its products (Nexus One, Android based phones etc) as well as geography ($200m in China). By the reaction, I refer to the tough stance taken by the Chinese foreign minister in the case of Akmal Shaikh and also the reaction in this case.
    This was a bold move by Google, but will they actually? I don’t think so. As you mentioned in your previous blog, strategy is a game. Google is testing the waters and the game continues.


  3. As Bill Clinton once said: it’s the economy stupid. Business interests will as always take precedence. There are many other valid points raised in the blog but $/Renminbi will be the deciding factor(s). There was mention of China’s sovereign wealth funds but it’s worth remembering that the largest amount is in US $.
    If Google walk then Baidu will surely gain even if it’s a poor substute for Google. Might Microsoft and/ or Yahoo try to gain traction?
    The real losers (for a time only) will be the Chinese user base. Google has the best search engine and relevant Internet services like the Android mobile phone.
    Will be interesting to see how this pans out.


  4. China denies everything. They have been hacking into India government sites too. They have spies everywhere. I am glad Google made that announcement, but one wonders whether they will follow it up. Who will take on the might of China?


  5. As a gentleman from Stanford pointed out to his BBC interviewer that first day, this may be more than a case of Google quitting China. It may be a case of China quitting the world.
    Everyone understands that cracking the Chinese market is a long-term proposition. Many deep-pocketed companies have tried, and have little to show for it years later. The concessions required by the Chinese to operate there (especially in terms of access to IP and human rights value differences, to name a few) should, by now, be seen (at least by Western companies) as too steep for the potential reward at some unspecified date decades into the future.
    If Google can boldly lead the way, which I believe it can, there more be more to follow. Yahoo should still remember handing over its data on human rights activists and the resulting fallout, and there are sure to be many more instances involving other companies that will be brought to light in the wake of this development.


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