Forget China.

When it comes to the worst place for Silicon Valley to do business, the emerging economic giant in Asia has nothing on Europe.

That might seem counterintuitive. China is a one-party authoritarian state that heavily censors the Internet and bans Facebook, Google and Twitter. The European Union comprises democracies committed to free markets and the rule of law.

But Europe’s recent actions — threatening to pull out of a 25-year-old landmark technology deal and new privacy rules that could result in fines of billions of dollars for offending companies like Google — have pushed relations between American tech firms and the continent to a new low.

While Europe’s reticence toward American tech firms is no doubt rooted in genuine concerns over antitrust and privacy, some experts detect more than a whiff of economic protectionism. Europe lacks the entrepreneurial spirit of the United States, leading it to fear any upstart threat to legacy corporations, said George Friedman, founder and chairman of Stratfor, a private intelligence company.

“They have to protect their corporations,” said Friedman, the author of “Flash Points: The Emerging Crisis in Europe.” “They are very uneasy with American entrepreneurialism. They don’t want Americans challenging their big companies.”

“Google and Apple has never happened in Europe,” he said. “There has been never been a revolution in microchips that wiped out older companies” like what happened in America.

Germany, the largest economy in the European Union, depends heavily on exports to other European nations. Fearful of unemployment, Germany has a deep need to protect its customers from foreign competition, Friedman said.

In a sense, both China and Europe are struggling on how to reconcile historical grievances with the fast-changing opportunities — and pitfalls — presented by new technology.

In China, nationalism has replaced communism as the country’s dominant ideology. The nation is haunted by humiliations, real and imagined, suffered at the hands of foreign powers in conflicts like the Opium War, the Boxer Rebellion and World War II.

Fearing exploitation

Many Chinese today suspect that foreigners are trying to exploit the country, impede China’s rightful ascension to global power, or even overthrow the government. So through the Great Firewall of China, officials regularly block outside content.

Yet despite China’s censorship, American officials are confident Chinese leaders will eventually loosen restrictions as its economy grows and the population gets richer.

“China’s economy is evolving,” U.S. Undersecretary of Commerce Stefan Selig recently told me. “They are trying to change from a exporter to a consumer-driven economy. The increased demand for U.S. goods and services will move the economy toward better connectivity with international businesses.”

In the wake of two devastating world wars and a prolonged Cold War, the European Union was formed in the 1990s. In 2004, the EU fined Microsoft nearly $800 million for antitrust violations and forced the software maker to release a version of its Windows operating system without its media player. Ten years later, the EU has threatened to fine Google $6 billion for alleged monopolistic practices; the European Parliament even went so far as to symbolically order the breakup of the search engine giant.

But recent revelations that the National Security Agency regularly spies on European citizens really struck a nerve, especially in France and Germany, the two largest economies in the European Union, said Stewart Room, who leads consulting firm PricewaterhouseCooper’s cybersecurity and data protection practice from London.

Some politicians have even called for the European Union to withdraw from the system that has governed data transfer between the United States and Europe since 1990, saying the Safe Harbor deal is no longer adequate.

Setting standards

Ironically, it was Europe that first insisted on the system with the United States. The idea was to establish a set of standards for businesses to safeguard personal data that moved between Europe and the United States. Today, the Federal Trade Commission and the Commerce Department enforce the pact for the more than 4,000 American companies certified under Safe Harbor.

“The program has been largely successful in achieving its stated twin goals of protecting privacy while promoting international data transfer,” according to a report by the Future of Privacy Forum, a think tank in Washington backed by corporations including AT&T, Facebook and Google.

Though U.S. companies were not too happy with Safe Harbor at first, the agreement has become crucial to doing business in Europe, experts say.

“Safe Harbor has become the primary way to demonstrate to business clients that they have done all the necessary protections of digital information,” said Jay Cline, who advises corporate executives on risk management for Pricewaterhouse.

When Selig, the commerce official, recently visited Silicon Valley, the top concern wasn’t China but Europe.

Though Selig said the United States and Europe have made “good progress” on Safe Harbor, “it reminds us that real challenges are facing U.S. service providers, about finding the right balance between national security issues as well as privacy issues.”

But with the future of Safe Harbor in doubt, companies are already drafting legal alternatives that will prove to European regulators they are protecting consumer privacy, Room sais.

Eliminating Safe Harbor, though, is just the beginning. Europe is drafting privacy laws that would expand the types of data companies must protect.

Most importantly, the rules would also apply to any European consumer data, not just the information that companies store or transmit in Europe. Violators could face up to a whopping 5 percent of a total annual revenue.

Avoiding competition

“They are almost impossible rules to comply with,” said Phil Lee, a partner with Fieldfisher law firm who heads its office in Palo Alto. “The idea behind these laws is to capture the Silicon Valley types.”

Like Friedman, Lee thinks Europe is at least partially using concerns over privacy to shield its industries from competition.

“That’s probably not their primary intent,” Lee said. “But if that happens, they won’t argue about it.”

Thomas Lee is a San Francisco Chronicle columnist. E-mail: tlee@sfchronicle.com Twitter: @ByTomLee