Why China has more to lose than Google

It's true. Google leaving China harms both. But it hurts the Chinese government more than Google. Here's why.

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The Associated Press pointed out the obvious today in a piece headlined "China without Google: 'a lose-lose scenario'."

The piece says losing permission to operate in China means Google won't be able to take Street View pictures, and its partnerships with cell phone companies and others would suffer. There are both direct and indirect downsides to Google.

But I think the downsides are far greater for the Chinese government.

Governments have long been forced to choose between authoritarianism and wealth. Authoritarian countries were poor. Capitalist democracies were rich.

Since the 1980s, China has tried to have it both ways: Suppress and control the people like a two-bit, third rate authoritarian government in the same category as, say, Burma or Cuba, but get rich on the spoils of capitalism like, say, the UK or Japan.

China has been getting away with it. The reason is above all its enormous population. Access to Chinese markets makes foreign multinationals and governments alike go all wobbly at the knees with greed. There's so much money to be made. Why allow little annoyances like the systematic trampling of human rights get in the way of making money?

And then Google comes along. Like other foreign companies trying to do business in China, Google has been violated in multiple ways -- hacked, stolen from, bullied, treated unfairly compared with Chinese competitors, and so on.

Like most companies, Google was willing to tolerate this in exchange for the money. However, Google is different from other companies in two ways.

First, its source code -- and the algorithms that govern page rank -- are the search business. When those were stolen by hackers (likely on behalf of Bidu, its chief Chinese competitor or the Chinese government or both), it was equivalent to Intel's next-generation chip designs being stolen by AMD, or KFC's secret recipe being stolen by Popeye's Chicken.

Second, nearly all Google's services can be delivered remotely, without a physical presence within China.

That combination prompted Google to threaten an abandonment of China, which looks increasingly likely.

Google doesn't want to leave China. And China doesn't want Google to leave. But Google wants to operate securely, and without censoring free speech for the Chinese Communist Party. And China wants Google to serve as an enabler of its authoritarian suppression.

The downside of a China departure for Google means potentially earning a few billion less in annual profits. The company will still earn dozens of billions each year, grow rapidly and continue to dominate the industry -- not to mention increasingly encroach on all our lives, and become indispensible to billions of people around the world.

But the threat to the Chinese Communist Party-dominated political system is existential.

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