Tech Firms Find Chinese Market Unnavigable

By Antonio Perez
Antonio Perez
Antonio Perez
January 18, 2010 Updated: October 1, 2015

The Google Chinese logo is displayed on a sign outside the company's office in Shanghai. (Philippe Lopez/AFP/Getty Images)
The Google Chinese logo is displayed on a sign outside the company's office in Shanghai. (Philippe Lopez/AFP/Getty Images)
NEW YORK—Google Inc.'s declaration last week that it would stop censoring all search results on its Chinese Web site—even if it must leave the market—underscores the challenges foreign technology firms face operating in Communist-ruled China.

Google's decision was made after it uncovered systemic cyber attacks from China on its infrastructure, as well as those of other companies.

With a population of 1.3 billion, China is viewed by many multinational enterprises as a vast, lucrative, and largely untapped market. But the Chinese Communist Party (CCP) has ruled with an iron fist that has become stricter with time—and many businesses find it increasingly difficult to doing business fairly in China.

“These attacks and the surveillance they have uncovered—combined with the attempts over the past year to further limit free speech on the Web—have led us to conclude that we should review the feasibility of our business operations in China,” said Google Senior Vice President and Chief Legal Officer David Drummond in a statement.

Google's recent clash with CCP authorities is not new to the business sector.

Last year, British-Australian mining company Rio Tinto rejected a $19.5 billion deal with Chinalco, China's largest aluminum producer. In turn, the CCP arrested four Rio Tinto employees in Shanghai on charges of espionage.

Two years ago, Chinese authorities rejected a proposed takeover of Huiyuan—China's largest juice maker—by Atlanta-based Coca-Cola Co.

Yet abroad, China's state-owned companies have flexed their muscles and have been on an acquisition spree during the global recession. Nanjing Automotive last year took over British automaker MG Rover, and Sichuan Tengzhong Heavy Industrial Machinery took over Hummer from General Motors Co. Chinese investment firms also bought substantial stakes in Western banks during the financial crisis, including Morgan Stanley and U.K.'s Barclays PLC.

Tech Companies Face Greater Obstacles

But technology companies face greater challenges due to the fact that the CCP uses Web filtering and censorship to directly control the information viewable by its citizens.

For example, last summer, China required all personal computers used in the country to possess a “Green Dam” Web-filtering software to block all politically sensitive Web pages. The demand was indefinitely withdrawn after an international uproar.