A man places flowers on the Google logo at its China headquarters in Beijing on March 23, 2010
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Containing the Fallout
To be sure, the spat with google is an embarrassment for China. It's a fight that "does not exactly promote the image of China as a forward-looking, technologically sophisticated country," according to one U.S. lawyer based in Beijing, echoing a common sentiment. But at the same time, Chinese authorities must be hoping that the dispute can be contained. After all, with a mere 2% of its $26 billion in revenue derived from China's search business, Google is one of the few multinationals that can take a principled stand.
No such luxury is afforded, for instance, to recent China visitor Tom Albanese, the American CEO of the Anglo-Australian mining giant Rio Tinto, for which China is now the largest market. On the same day that Google switched off its Chinese filters, four of Albanese's employees went on trial in Shanghai on corruption charges. If he still believed (as many in the foreign business community did when the four were arrested in 2009) that the trial was retribution for a soured deal with Chinalco, China's huge state-owned aluminum producer, he wasn't showing it. He wasn't even in Shanghai but in Beijing, making an extremely conciliatory speech at the China Development Forum — a Davos-like conference for dozens of corporate chieftains. Premier Wen Jiabao attended, and global CEOs lined up obligingly for the handshake.
Each of them will be counting on continued Chinese growth to help pull the world through economic recovery and beyond, but they can't afford to be complacent about their business relationships with the Middle Kingdom. On March 21, the American Chamber of Commerce in Beijing reported that 38% of the companies responding to a recent survey felt frozen out — "unwelcome to participate and compete in the Chinese market" — a steep rise from 26% a year ago.
China can hardly be blamed for favoring its own. Although it has managed to pull through the global crisis of the past two years better than virtually anyone expected (including, truth be told, Beijing's own leadership), its top export markets are still weak, and that is fostering a powerful drive toward boosting domestic consumption. The country also feels threatened by calls — most prominently made by U.S. President Barack Obama — for the renminbi to better reflect market fundamentals. In the past, U.S. Treasury Secretary Timothy Geithner has outright accused China of manipulating the renminbi and most (though not all) economists believe that China's currency needs to rise versus the dollar. But at a moment when U.S. unemployment is close to 10%, Beijing feels that it is being made a scapegoat for economic problems that are, let's face it, very much made in the U.S.A. It has fired back fiercely. Premier Wen has called any talk about currency revaluation a form of "protectionism." His Commerce Minister later added that in any dispute between the two countries, "Americans and American companies" would suffer more than their Chinese counterparts.
At the same time, Wen has also said that "no one wants a trade or currency war." Even as the China Development Forum was taking place, Wen noted that a Chinese envoy was en route to Washington to discuss trade issues, and pointed with hope to a May session of the biannual Strategic and Economic Dialogue, at which high-ranking delegations from both sides will sit down in Washington. "You got a sense," says an American participant, "that he wants calmer heads to prevail."
A lot rides on that being true, and a key test is upcoming. In mid-April, Geithner has to decide whether to formally brand China a currency manipulator, something the U.S. has thus far refrained from doing. If he does, Beijing will be furious. And if he doesn't, the U.S. Congress, already threatening new tariffs against Chinese imports, will be furious. One hopeful sign: a U.S. Treasury team was recently in Beijing, no doubt talking about exactly this subject. Politics is rearing its head on both sides of the Pacific these days. And it may take an optimist on the scale of a Sergey Brin to think that anything good will come of it.