This One Has Legs is about stories that are just emerging on the news+web screens which wont be one day wonders but will be grabbing major news space for weeks and months ahead. China vs Google is one of those stories. On January 12th Google said it was considering no longer filtering/censoring search requests from the Chinese market because its mail services and servers had been subject to attacks from Chinese hackers. Here is the crux of what was said.

We launched Google.cn in January 2006 in the belief that the benefits of increased access to information for people in China and a more open Internet outweighed our discomfort in agreeing to censor some results. At the time we made clear that “we will carefully monitor conditions in China, including new laws and other restrictions on our services. If we determine that we are unable to achieve the objectives outlined we will not hesitate to reconsider our approach to 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. We have decided we are no longer willing to continue censoring our results on Google.cn, and so over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all. We recognize that this may well mean having to shut down Google.cn, and potentially our offices in China.

But the issue goes beyond censorship and attacks on Google Mail and other servers. The cyber attack on Google is a misnomer – this was a concerted Chinese attack upon at least 20 US companies and government agencies. It used very sophisticated techniques including a zero-day vulnerability in all versions of Microsoft Internet Explorer and the targets were espionage on intellectual property and trade secrets. This is why the story has legs – there are broader National Security concerns:

Let’s remember that China doesn’t only have what’s called the great firewall of China, the filtering and censoring system. They also have a very aggressive system of cyber-spying and cyberattack, probably the most sophisticated in the world….Cyber-spying is clearly an effort by the Chinese to move into the information age and adopt a kind of asymmetrical warfare. China is not matching the U.S. military, ship for ship, but if it develops a very sophisticated capability to destroy command and control systems, computer systems, that’s a very potent weapon in any kind of conflict, military or otherwise.

And so the other shoe did drop with Secretary of State Clinton’s call for a)for broad internet freedom of from cyber attacks and b)a thorough and transparent investigation by the Chinese government on how and who originated the attacks on Google and others. The Chinese immediately raised the stakes and said these views were increasing bilateral tensions between the US and China. This came after late fall meetings in Beijing in which Obama promised more pragmatic/constructive relations with China. Clearly China is prepared to double down on the cyber-attack and freedom of the Internet issues

The Stakes and Trade-offs

The problem the Chinese have is their pants are down on this because the consensus is that the attacks did indeed originate in China and that there is a history of increasing cyber-attacking by the Chinese. Also China is growing unpopular even in developing countries because its aggressive mercantilist [very low prices for Chinese goods based on an artificially low currency pegged by Beijing, not world markets] and monopolistic economic policies have wiped out just emerging industries in developing countries as diverse as Vietnam, Mexico, and Kenya. The problem for the US is that China has $2.3 trillion in US debt [which if the Chinese do controlled dumps-of could cause a US dollar fall and force a raise in US interest rates cutting off US economic recovery]. As well China has used its veto in the UN to stall actions in Sudan/Darfur plus limiting efforts to control the nuclear ambitions of North Korea and Iran. China as well got the developing countries of India, Brazil, and Russia to torpedo any realistic climate change controls and targets in Copenhagen. In sum, in a game of high stakes political and economic poker, the two sides are apparently lining up their political and economic bets and the signs are for big, very big plays on both sides.