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C O N F I D E N T I A L SECTION 01 OF 03 BEIJING 000247 

SIPDIS 

DEPT FOR S, P, D, EAP/CM, EEB, AND H 
NSC FOR BADER, MEDEIROS, AND LOI 

E.O. 12958: DECL: 01/28/2030 
TAGS: ECON EINV PGOV PREL CH
SUBJECT: GOOGLE UPDATE: CHINA TECH BUSINESS COMMUNITY 
SPECULATES AND EVALUATES 

REF: BEIJING 183 

Classified By: Economic Minister Counselor Weinstein for reasons: 1.4(B), (D) 

¶1. (C) Summary. Despite media reports quoting Google 
officials in the U.S. as saying Google is in talks with 
China, a Ministry of Commerce official told a visiting U.S. 
delegation on January 28 that "it would be better if Google 
stopped telling the media that it is in negotiations with 
China, since it is not." However, a Foreign Ministry 
official told Poloff earlier this week there is going to be a 
"meeting in Davos" that China hopes "will resolve everything 
in an extremely low-key and quiet manner." Separately, 
several U.S.-China dialogues related to IT issues were 
unexpectedly postponed by China this week due to the 
purported unavailability of key officials who had previously 
confirmed to attend. It is unclear, however, whether the 
postponements are related. Google remained the hot topic 
this week among our contacts in China,s information 
technology (IT) industry, with those in foreign firms 
generally supportive and appreciative of the Secretary,s 
speech on internet freedom. Expat executives said that while 
they expect the USG's highlighting of internet freedom and 
requests for an investigation of Google's allegations will 
lead to frictions with China, they welcomed the intervention 
in what they see as an increasingly difficult operating 
environment. End summary. 

GOOGLE REMAINS HOT 
------------------ 
¶2. (C) Google's decision to potentially walk away from 
China's market of nearly 400 million internet users continues 
to spark extensive discussion on a range of important related 
issues: censorship and information flow; principled versus 
bottom-line decision-making; protection of corporate 
proprietary information and intellectual property; and how 
companies can effect positive change from within a foreign 
economy. Secretary Clinton's January 21 speech on Internet 
freedom touched a nerve in China's leadership (reftel), and 
rightly so according to our local business contacts who 
regularly cite the increasingly challenging business climate 
in China. Locally-based western businessmen and consultants 
are viewing Google's confrontation with the Chinese 
authorities with a fascinated mix of admiration and caution, 
though few are willing to bet on the ultimate outcome. 

¶3. (C) Western companies Chinese employees are, not 
surprisingly, sometimes more sympathetic to the PRC,s 
position. XXXXXXXXXXXX commented that Google
has played matters badly, suggesting it  should have tried to
help PRC authorities understand what  Google provides "is
good for China." Xiao stated he thinks  Google approache
 the problem incorrectly, citing Bill Gates'  position that
companies must "follow the laws of the country  in which
they operate." Xiao also intimated that, as a  Chinese citizen,
he could empathize with the Chinese  government’s fears that
Google's services could be used by  Dalai Lama supporters to
publicize their views throughout  China. Liu Tao, Government
Affairs Manager for Caterpillar, 
notes that the parties involved in the Google issue should 
discuss the issue without "being so emotional." Liu, a 
Chinese citizen, said that the Chinese government was "not 
acting emotionally" over this issue. 

PREDICTIONS FOR A RESOLUTION 
---------------------------- 
¶4. (C) A visiting London-based XXXXXXXXXXXX executive
believes the  Google matter was a "good shaking of the tree
 for China  issues needing greater visibility. Although he predicted 
impact from Google would not necessarily change the game for 
European interests here, he noted that Google has established 
close relations with UK Conservatives, and predicted a 
potential future Conservative government would be very 
supportive of the tenets in Secretary Clinton's recent 
speech. Another Beijing-based XXXXXXXXXXXX consultant
compared  Google,s experience to Intel, which in 2003
threatened to  withdraw from China after Chinese authorities
sought to  impose technological modifications to its encryption-
enabled  products. The Chinese government ultimately backed down,
but  our local contact believes Chinese payback continues today 
and is one reason China insists that homegrown technology  be 

BEIJING 00000247 002 OF 003 


co-installed in any WI-FI-enabled phones/communication 
devices. The latter local contact further suggested Google 
could pursue resolution of its current impasse by lobbying 
technologically-enlightened senior statesmen, especially more 
pro-business ones, who might sway China's leadership to 
address Google's censorship issues more moderately. 

¶5. (C) Many contacts have opined that it appears Google will 
likely remain in China, albeit with a more limited presence, 
i.e., without a search engine service. Although Google has 
firmly positioned itself on censorship matters and hence will 
likely have little choice but to take down its Google.cn 
search site, they believe Google executives' public 
statements and vested interests still coincide with 
maintaining at least some presence in China. 

LONG TERM OUTLOOK POSITIVE, SHORT TERM FALLOUT 
--------------------------------------------- - 
¶6. (C) Another IT association representative told Econoff 
that interest in the Google case "highlights the growing 
number of Chinese measures and policy goals that diminish the 
investment environment in China... part of a troubling 
pattern that is making it increasingly difficult for foreign 
firms to do business." Business contacts told ConGen 
Shanghai that they "welcome a more assertive voice on behalf 
of the U.S. While it may not be good for U.S.-China 
relations in the short term, it will be better in the long 
term. We need to stand for what we believe in." Injecting a 
more cautionary note, however, another Shanghai businessmen 
warns that "America will not advance its objectives with 
regard to the bilateral relationship by telling the Chinese 
government that it is working to put new internet 
technologies into the hands of dissidents. In this particular 
face-off, at least, the Chinese are 'spinning' the issue far 
more effectively than the Americans." 

¶7. (C) Fallout beyond China's borders continues. Two 
governmental dialogues (the U.S. China ICT Consultations, 
previously scheduled for February 9, 2010, and the 
DOC-Ministry of Industry and Information Technology on 
February 2, 2010 - both in Washington DC) were postponed this 
week due to purported unavailability of key officials who had 
previously confirmed to attend. Congen Shanghai has found 
many IPR-related meetings cancelled this week. 
Interestingly, officials from the Swedish Embassy were 
summoned to the MFA to receive a protest of statements made 
by the Swedish FM supportive of Secretary Clinton's speech on 
Internet Freedom. According to our Swedish contacts, the MFA 
charged the Swedes with damaging ties during the 60th 
anniversary of Chinese-Swedish diplomatic relationship. 

WHAT'S DRIVING CHINA 
-------------------- 
¶8. (C) According to another well-respected tech sector 
analyst here, a number of historical, cultural, and 
technological factors have coalesced to put China in a 
technologically-aggressive state-of-mind. One contributing 
factor was Microsoft's flubbed 2004 "black screen" strategy 
to deter intellectual property theft by darkening computer 
monitors running unlicensed Windows operating software. This 
consultant believes that example of U.S. technology 
effectively wielding power over China's personal computers 
helped spur China's aggressive campaign for source codes and 
its own technology. This, combined with growing Chinese 
pride, economic clout and influence, and the "weakened" 
position of the U.S. and its allies after the global economic 
downturn, are emboldening the Chinese to take ever more 
aggressive positions in advancing its innovative industries 
at the expense of foreign ones. 

¶9. (C) A local Microsoft executive applauds the Secretary's 
speech and the Administration's commitment "to organize 
sustained, targeted, persistent engagement on the full range 
of Internet-related issues" with China. This executive said 
the Secretary's remarks were "right on point," particularly 
for companies who "desperately need the help of the USG" in 
the face of "harassment, threats and actual shutdowns of 
service, threats of licenses being revoked, resistance to 
provide legal authority, mandates to place servers in China, 
etc." Our local APCO contact described the Google issue as a 
"stirring of the beehive," but says the kind of harassment 
Microsoft describes is a fact of worsening life here which 

BEIJING 00000247 003 OF 003 


the Google incident only helps spotlight. 
HUNTSMAN