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Cablegate: Google Update: China Tech Business Community

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RHMFISS/DEPT OF HOMELAND SECURITY WASHINGTON DC IMMEDIATE
RHMFISS/FBI WASHINGTON DC IMMEDIATE
RUEAWJA/DEPT OF JUSTICE WASHDC IMMEDIATE
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C O N F I D E N T I A L SECTION 01 OF 03 BEIJING 000247

SIPDIS

DEPT FOR S, P, D, EAP/CM, EEB, AND H
NSC FOR BADER, MEDEIROS, AND LOI

E.O. 12958: DECL: 01/28/2030
TAGS: ECON EINV PGOV PREL CH
SUBJECT: GOOGLE UPDATE: CHINA TECH BUSINESS COMMUNITY
SPECULATES AND EVALUATES

REF: BEIJING 183

Classified By: Economic Minister Counselor Weinstein for reasons: 1.4(B), (D)

1. (C) Summary. Despite media reports quoting Google
officials in the U.S. as saying Google is in talks with
China, a Ministry of Commerce official told a visiting U.S.
delegation on January 28 that "it would be better if Google
stopped telling the media that it is in negotiations with
China, since it is not." However, a Foreign Ministry
official told Poloff earlier this week there is going to be a
"meeting in Davos" that China hopes "will resolve everything
in an extremely low-key and quiet manner." Separately,
several U.S.-China dialogues related to IT issues were
unexpectedly postponed by China this week due to the
purported unavailability of key officials who had previously
confirmed to attend. It is unclear, however, whether the
postponements are related. Google remained the hot topic
this week among our contacts in China,s information
technology (IT) industry, with those in foreign firms
generally supportive and appreciative of the Secretary,s
speech on internet freedom. Expat executives said that while
they expect the USG's highlighting of internet freedom and
requests for an investigation of Google's allegations will
lead to frictions with China, they welcomed the intervention
in what they see as an increasingly difficult operating
environment. End summary.

GOOGLE REMAINS HOT
------------------
2. (C) Google's decision to potentially walk away from
China's market of nearly 400 million internet users continues
to spark extensive discussion on a range of important related
issues: censorship and information flow; principled versus
bottom-line decision-making; protection of corporate
proprietary information and intellectual property; and how
companies can effect positive change from within a foreign
economy. Secretary Clinton's January 21 speech on Internet
freedom touched a nerve in China's leadership (reftel), and
rightly so according to our local business contacts who
regularly cite the increasingly challenging business climate
in China. Locally-based western businessmen and consultants
are viewing Google's confrontation with the Chinese
authorities with a fascinated mix of admiration and caution,
though few are willing to bet on the ultimate outcome.

3. (C) Western companies Chinese employees are, not
surprisingly, sometimes more sympathetic to the PRC,s
position. XXXXXXXXXXXX commented that Google
has played matters badly, suggesting it should have tried to
help PRC authorities understand what Google provides "is
good for China." Xiao stated he thinks Google approache
the problem incorrectly, citing Bill Gates' position that
companies must "follow the laws of the country in which
they operate." Xiao also intimated that, as a Chinese citizen,
he could empathize with the Chinese government’s fears that
Google's services could be used by Dalai Lama supporters to
publicize their views throughout China. Liu Tao, Government
Affairs Manager for Caterpillar,
notes that the parties involved in the Google issue should
discuss the issue without "being so emotional." Liu, a
Chinese citizen, said that the Chinese government was "not
acting emotionally" over this issue.

PREDICTIONS FOR A RESOLUTION
----------------------------
4. (C) A visiting London-based XXXXXXXXXXXX executive
believes the Google matter was a "good shaking of the tree
for China issues needing greater visibility. Although he predicted
impact from Google would not necessarily change the game for
European interests here, he noted that Google has established
close relations with UK Conservatives, and predicted a
potential future Conservative government would be very
supportive of the tenets in Secretary Clinton's recent
speech. Another Beijing-based XXXXXXXXXXXX consultant
compared Google,s experience to Intel, which in 2003
threatened to withdraw from China after Chinese authorities
sought to impose technological modifications to its encryption-
enabled products. The Chinese government ultimately backed down,
but our local contact believes Chinese payback continues today
and is one reason China insists that homegrown technology be

BEIJING 00000247 002 OF 003


co-installed in any WI-FI-enabled phones/communication
devices. The latter local contact further suggested Google
could pursue resolution of its current impasse by lobbying
technologically-enlightened senior statesmen, especially more
pro-business ones, who might sway China's leadership to
address Google's censorship issues more moderately.

5. (C) Many contacts have opined that it appears Google will
likely remain in China, albeit with a more limited presence,
i.e., without a search engine service. Although Google has
firmly positioned itself on censorship matters and hence will
likely have little choice but to take down its Google.cn
search site, they believe Google executives' public
statements and vested interests still coincide with
maintaining at least some presence in China.

LONG TERM OUTLOOK POSITIVE, SHORT TERM FALLOUT
--------------------------------------------- -
6. (C) Another IT association representative told Econoff
that interest in the Google case "highlights the growing
number of Chinese measures and policy goals that diminish the
investment environment in China... part of a troubling
pattern that is making it increasingly difficult for foreign
firms to do business." Business contacts told ConGen
Shanghai that they "welcome a more assertive voice on behalf
of the U.S. While it may not be good for U.S.-China
relations in the short term, it will be better in the long
term. We need to stand for what we believe in." Injecting a
more cautionary note, however, another Shanghai businessmen
warns that "America will not advance its objectives with
regard to the bilateral relationship by telling the Chinese
government that it is working to put new internet
technologies into the hands of dissidents. In this particular
face-off, at least, the Chinese are 'spinning' the issue far
more effectively than the Americans."

7. (C) Fallout beyond China's borders continues. Two
governmental dialogues (the U.S. China ICT Consultations,
previously scheduled for February 9, 2010, and the
DOC-Ministry of Industry and Information Technology on
February 2, 2010 - both in Washington DC) were postponed this
week due to purported unavailability of key officials who had
previously confirmed to attend. Congen Shanghai has found
many IPR-related meetings cancelled this week.
Interestingly, officials from the Swedish Embassy were
summoned to the MFA to receive a protest of statements made
by the Swedish FM supportive of Secretary Clinton's speech on
Internet Freedom. According to our Swedish contacts, the MFA
charged the Swedes with damaging ties during the 60th
anniversary of Chinese-Swedish diplomatic relationship.

WHAT'S DRIVING CHINA
--------------------
8. (C) According to another well-respected tech sector
analyst here, a number of historical, cultural, and
technological factors have coalesced to put China in a
technologically-aggressive state-of-mind. One contributing
factor was Microsoft's flubbed 2004 "black screen" strategy
to deter intellectual property theft by darkening computer
monitors running unlicensed Windows operating software. This
consultant believes that example of U.S. technology
effectively wielding power over China's personal computers
helped spur China's aggressive campaign for source codes and
its own technology. This, combined with growing Chinese
pride, economic clout and influence, and the "weakened"
position of the U.S. and its allies after the global economic
downturn, are emboldening the Chinese to take ever more
aggressive positions in advancing its innovative industries
at the expense of foreign ones.

9. (C) A local Microsoft executive applauds the Secretary's
speech and the Administration's commitment "to organize
sustained, targeted, persistent engagement on the full range
of Internet-related issues" with China. This executive said
the Secretary's remarks were "right on point," particularly
for companies who "desperately need the help of the USG" in
the face of "harassment, threats and actual shutdowns of
service, threats of licenses being revoked, resistance to
provide legal authority, mandates to place servers in China,
etc." Our local APCO contact described the Google issue as a
"stirring of the beehive," but says the kind of harassment
Microsoft describes is a fact of worsening life here which

BEIJING 00000247 003 OF 003


the Google incident only helps spotlight.
HUNTSMAN

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