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Google May Exit China After Ending Self-Censorship

January 14, 2010

By Brian Womack, Ari Levy and Mark Lee

Jan. 13 - (Bloomberg) -- Google Inc. defied the Chinese government by saying
it will end self-censorship of its search engine and may quit the world's
largest Internet market after attacks on e-mail accounts of human-rights
activists.

A series of "highly sophisticated" attacks on Google and at least 20 other
companies last month, as well as limits on free speech, led to the decision,
Google said in a statement on its Web log. Images of the 1989 Tiananmen
Square crackdown were among previously censored results visible on Google.cn
today.

U.S. Secretary of State Hillary Clinton said the Chinese government should
respond to Google's "serious" allegations. A departure would deprive Google
of an estimated $600 million in annual revenue from China's 338 million
Internet users and may help Baidu Inc. extend its lead in the country.

"Google and others fear China's involvement above and beyond censorship,"
said George Kurtz, worldwide chief technology officer at McAfee Inc., the
second-biggest maker of security software. "This is the straw that breaks
the camel's back."

China's Internet authorities are seeking more information about Google's
intentions, the official Xinhua news agency said, citing an unnamed
"high-ranking" official with the State Council Information Office. 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.

Technology to Chemicals

Google's decision to stop self-censorship "lays down the gauntlet to other
Internet companies operating in China: to be transparent about what
filtering and censorship the government requires them to do," Kate Allen,
Amnesty International U.K. director, said in an e-mailed statement.

Companies in industries ranging from finance to technology, media and
chemicals had been targeted by hackers, Google said. The attacks targeted 34
companies, most of them from Silicon Valley, California, the New York Times
reported, citing unidentified people familiar with Google's investigation.

"Western companies such as Google face a dilemma in China," said Norbert
Pohlmann, a professor and head of the Internet-security research at the
University of Applied Sciences in Gelsenkirchen, Germany. "On the one hand,
they're eager to benefit from China's dramatic economic growth. On the
other, they have to deal with local laws and values that are different from
the West. Especially for media companies, it's a tricky issue as China has a
different definition of privacy and human rights."

Phishing Scams, Malware

Mountain View, California-based Google said it's notifying other companies
that were attacked and is working with U.S. authorities. Adobe Systems Inc.,
the world's biggest maker of graphic-design programs, said a "sophisticated,
coordinated" attack targeted network systems it managed.

Gmail users who are advocates of human rights in the U.S., China and Europe,
have had their accounts accessed, most likely through phishing scams or
malware on the users' computers, Google said.

"The Chinese have long censured the Web, but this is the first time they
have targeted accounts overseas," Arvind Ganesan, head of Human Rights
Watch's business and human rights program, said in an interview from Geneva.
"If this wasn't done by the security services, then it was certainly done by
a proxy for them."

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.

Criticized

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.

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 co- 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.

Google is still censoring search results on Google.cn, its Chinese search
engine, Courtney Hohne, a Singapore-based spokeswoman, said in an e-mail
today. "Nothing has changed at all," she said.

Baidu's American depositary receipts jumped 11 percent to $430.50 in Nasdaq
Stock Market trading at 9:48 a.m. New York time, while Google fell $9.81, or
1.7 percent, to $580.67.

Opening the Conversation

Baidu accounted for 58.4 percent of China's Internet search market in the
fourth quarter, compared with 35.6 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."

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. 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."

Google's plan to stop censoring on its Chinese site "sets a great example"
for other companies, New York-based Human Rights Watch said in a statement.

YouTube Access

The attack, which occurred in the middle of December, originated in China
and resulted in intellectual property being stolen, Google said. Two Gmail
accounts may have been accessed as part of last month's attack, it said.

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 by China's official
Xinhua News Agency as a fabrication.

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.

Google is latest target of aggressive hacking from China

An attempt to break into Chinese activists' Google Gmail accounts echoes
last year's massive Ghostnet attack, which spied on 1,000 computers
worldwide. Both attacks originated in China and, some experts suspect, were
linked to the government.
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