Google Mulls Leaving China After Major Attacks! "Don't Be Evil"

Google May Exit China After Sophisticated Attack



Google Inc., owner of the most popular Internet search engine, may shut its Chinese Web site and offices after a “highly sophisticated” cyber attack aimed at the e-mail accounts of human-rights activists.

Google also said at least 20 other large companies in industries ranging from finance to technology, media and chemicals had been targeted by hackers. The attacks, combined with attempts in the past year to limit free speech on the Web, has led the company to decide it will stop censoring results on its Google.cn site, it said.

A departure would follow four years of clashes over censorship and highlight the challenges global companies face operating in a one-party state that controls the flow of information. A pullout would deprive Google of an estimated $600 million in annual revenue from China’s 338 million Internet users and may help domestic Baidu Inc. extend its lead in the world’s largest online market.

“We are beginning to see companies saying ‘we don’t have to be here,’” said Duncan Clark, chairman of Beijing-based business consultancy BDA China Ltd. “We’re certainly seeing more of a trend toward protectionism, but also a feeling that there isn’t a permissive attitude toward foreign companies generally.”

Baidu Shares Rise

Google fell $6.68, or 1.1 percent, to $583.80 in extended trading after closing at $590.48 on the Nasdaq Stock Market, while Baidu’s American depositary receipts added 6.8 percent after the end of regular Nasdaq trading.

Dozens of accounts of Gmail users, who are advocates of Human Rights in the U.S., China and Europe, were accessed, most likely through phishing scams or malware on the users’ computers, Google said. With phishing scams, hackers pretending to be legitimate Web sites ask users to divulge confidential information, while malware includes programs that record users’ keystrokes as they type in passwords.

The Chinese government’s Human Rights record “remained poor and worsened in some areas” during 2008, the U.S. State Department said in a February 2009 report on human rights practices in countries around the world. Authorities in China monitored various types of communication, including telephone, e-mail and the Internet, the department said.

Wang Lijian, a Beijing-based spokesman for the Ministry of Industry and Information Technology, said he couldn’t comment as he was unaware of the situation. China’s foreign ministry declined to comment.

More Attacks

Mountain View, California-based Google said it’s notifying other companies that were attacked and is working with U.S. authorities.

“It’s probably too early to think that Google is pulling out of China altogether given how big the China market is and will be,” said Jeff Papp, a senior analyst at Oberweis Asset Management Inc., which manages about $900 million, including Baidu stock.

The company was projected to generate revenue of about $600 million from China in 2010, according to estimates by Imran Khan, an analyst at JPMorgan Chase & Co. in New York.

Google hired Lee Kai-fu from Microsoft Corp. in 2005 to head its operations in China, where the Internet company started a local-language search service that excludes results censored by the Chinese government. The efforts were part of Chief Executive Officer Eric Schmidt’s to expand in a market that overtook the U.S. as the biggest Web market in 2008.

Yahoo China

Google and Yahoo Inc. were among companies that were criticized by U.S. lawmakers in 2006 for complying with the Chinese government’s restrictions on the Internet.

Yahoo Founder Jerry Yang said in 2005 that a court order obliged the Sunnyvale, California-based company to hand over user records that led to the conviction of a Chinese journalist.

Yahoo spokeswoman May Petry said the company is preparing a comment.

Baidu accounted for 63.9 percent of China’s Internet search market in the third quarter, compared with 31.3 percent for Google, according to researcher Analysys International. Baidu declined to comment on Google’s decision.

“There’s no other competitor, so if Google pulls out, Baidu is left by itself,” said Erwin Sanft, an analyst at BNP Paribas SA in Hong Kong. “If they pull out of China, it’s very hard to really get back in the market and still have a similar presence.”

Don’t Be Evil


The move signals Google is hewing closer to its “Don’t be evil” motto, said Heath Terry, an analyst at FBR Capital Markets in New York. Still, Google is still a “long way away from getting out of China,” Terry said. The company can threaten to leave the country because China accounts for such a small piece of Google’s sales, he said.

“This is their way of opening up this important conversation,” Terry said. “This is their way of starting to move the conversation forward.”

China has more Internet users than the total population of the U.S., according to the China Internet Network Information Center, a government-backed agency that licenses online domain names.

Google said the attack, which occurred in the middle of December, originated in China and resulted in intellectual property being stolen.

Gmail Acounts

Google said two Gmail accounts appear to have been accessed as part of the attack. The information gathered was limited to account information, such as the date the account was created, as well as the subject lines of e-mails, Google said. The contents of e-mails weren’t exposed.

State Department officials didn’t immediately respond to requests for comment. Federal Bureau of Investigation spokesman Jason Pack declined to comment.

Access to Google’s YouTube video site was blocked in China after Tibet’s government-in-exile released a video on March 20 that it said showed Chinese police beating protesters. The video was described as a fabrication by China’s official Xinhua News Agency.

Google also has drawn complaints from a Chinese writers’ group about its online book-scanning project. Google should stop scanning books without permission, the China Writers Association said in November. Google apologized to authors this week for a lack of communication.

Last year, China pushed personal-computer makers to install filtering software on their machines. The government backed away from that requirement in June, though it later said it would require the software on computers in schools and Internet cafes.



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Sources: AP, Google Maps, Bloomberg, CNN, Mox News, Youtube, Google Maps