Here is the latest on the fast evolving China vs Google story as it takes some interesting turns and starts to reveal some of its underlying causes:

CNET Reports: “After warnings of strained U.S.-China relations, China’s government has issued statements denying any state involvement in the cyberattacks on Google and defending its online censorship.” This Chinese statement exonerates China and warns again of consequences for bilateral relations between China and the US which could be damaged.

UPI reports that China ups the ante and denies any government involvement, “explicit or implicit” in the cyberattacks.

But Foreign Policy magazine lists the 10 biggest Chinese Cyber-attacks of the last five years.

Bloombeg News catches a novel spin by Xinhua, the official China news agency: ‘Clinton’s statements about Internet freedoms were also “inconsistent with the facts” and an example of the “double standards” imposed by the U.S., according to the commentary dated Jan. 23. It is “common practice” for countries including the U.S. to restrict access to online information, according to Xinhua.’ Bloomberg makes no attempt to refute the accusations either indicating they are preposterous or Bloomberg does not know or if Bloomberg does know it is not telling. This party would be curious as to what the Chinese are referring to – the secretive, ill-fated Democratic Party Health Bill negotiations? Hardly a match for banning Twitter,Facebook, You Tube and others plus censored Baidu and Google searches in China.

Federal Computer Week and Computerworld report: “The U.S. has no formal policy for dealing with foreign government-led threats against U.S. interests in cyberspace. With efforts already under way to develop such a policy, the recent attacks could do a lot to shape the policy and fuel its passage through Congress.” they go on to say that retaliation is self-damaging and broader cyber attack policy should be the priority.

Here is a curious report from Certified Chinese Translations:

Each time, Baidu has benefited from the fall out of Google in China. Each time, Baidu’s share prices increased when Google encountered problems in China. Indeed, some people suspect that Baidu is the prime suspect behind the recent cyber attacks on Google as Chinese companies can “suggest” the government to engage in certain actions against foreign companies when necessary, especially when it is related to national security.Although the attacks seem to come from China, both Baidu and the Chinese government vigorously denied their involvement. They claim that they are the victim of cyber attacks as well. Recently, Baidu was inaccessible for a few hours on January 12, 2010. They claim that they were attacked by the Iranian Cyber Army, who attacked the US domain registration company register.com . Baidu is currently suing the company for negligence. Baidu is a company that many claim was the “Hooligan Search Engine” in China. It used to host many materials that infringed on the intellectual property rights such as mp3s, videos, etc.(Though now it is trying to comply with the applicable laws). It used to bully Chinese small businesses and tried to “persuade” them to advertise on Baidu. (If they did not, consequences would follow). It also used many other tactics to increase its market share in China. Most of its users are young, not-so-wealthy, relatively less educated compared to the sophisticated, educated, and wealthy users of Google. And they are easily angered and instigated by certain nationalistic events as well. To say that Baidu is totally innocent is to say that Hitler did not kill any Jews, some say. (What would the Chinese government want Google’s source code for? Although I personally hope and believe that Baidu might be innocent).

This account, if certifiably frank[given the Hitler remark, I suspect it is], then would help to explain a)why Google is still losing to Baidu in the Chinese market and b)why the following unexpected departure of a Baidu COO and then CTO occurred as the Google story broke. The following stories suggest that Baidu may indeed be implicated.

The Guardian, Business Week, and Financial Times cast a new light on the Google situation in China:

As was pointed out last week, Google isn’t the top dog in terms of search in China, and some suggested that its loud threat to depart the country was a humbled company, tail between its legs, quitting a market it couldn’t conquer: Baidu holds the top spot in terms of search in China.However, in the last 10 days, Baidu has seen both its chief technology and chief operations officers leave. COO Ye Peng left the company on 8 January, citing “personal reasons”. The China Digital Times said that the People’s Daily also cited “personal reasons” for CTO Li Yinan’s departure and did not lay out his future plans. Blogger Uln at Chinayouren called the departure ‘mysterious’. However, a comment on that post says that Li is taking over as CEO at a subsidiary of China Mobile, a move that was also reported by Xinhua, the official news agency of the People’s Republic of China. The departures come as Baidu’s share of the Chinese search market is slipping as Google was gaining. BusinessWeek reports: “Baidu had 58.6 percent of China’s online search market in the fourth quarter, down from 63.9 percent in the previous three months, according to researcher Analysys International. Google’s market share increased to 35.6 percent from 31.3 percent over the same period, the Beijing-based researcher said.” The Financial Times said that the departures from Baidu suggest “further disruptions ahead in China’s Rmb7.5bn ($1.1bn) online search market”. The company is the process of transitioning to a new search advertising platform called Phoenix Nest, similar to Google’s AdWords. As with Yahoo’s calamitous move to its new Panama advertising system in the US from 2003-2007. The transition has been cited as one of the reasons behind Baidu’s falling market share.

Finally Googles actions on canceling its cellphones launch has had a chilling effect as noted here – its actions are implying that China, given its cyberattacks and continued outright intellectual property thefts, is not a good place to do High Tech business.

Stay tuned – as noted before, This Story Has Legs.