GOOGLE DAY 2: BALL STILL IN GOOGLE'S COURT

C O N F I D E N T I A L SECTION 01 OF 03 BEIJING 000105

SIPDIS

NSC FOR MEDEIROS AND LOI

E.O. 12958: DECL: 01/13/2020
TAGS: ECON EINV PGOV PREL CH
SUBJECT: GOOGLE DAY 2: BALL STILL IN GOOGLE'S COURT

REF: A. BEIJING 104

B. BEIJING 86

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


1. (C) Summary. Google's Beijing headquarters continued
business "as usual" today as it still provided the
China-based version of its search engine. Google emphasized
its filtering of that search engine remained "unchanged" and
"compliant with Chinese law." Google has not yet engaged the
Chinese government in discussions about continuing its
operations here. The Chinese Government provided the first
official reaction to Google's January 14 announcement, with
the MFA spokesperson and other PRC officials rejecting
allegations of Chinese responsibility for the recent, alleged
cyber attacks on Google and other companies' internet
architecture. Local industry experts and American
businesspersons here almost unanimously expect Google will
withdraw from the market, despite its claims to still be open
to resolving its problems with China. Local media coverage
included numerous business articles on Google's travails,
with at least one Chinese website claiming to have conducted
an opinion poll showing a large majority support China not
making concessions to Google. End Summary.


2. (C) Google China's Beijing HQ remained relatively quiet
January 14, with Google employees continuing to work.
Spectators, press, and well-wishers continued to visit,
according to XXXXXXXXXXXX. XXXXXXXXXXXX
explained Google has still not engaged with PRC authorities
to reach a solution to the current impasse, but noted China's
State Council Information Office (SCIO) did contact Google
China's government relations staff January 13 following a
several-hour suspension of Google.cn's search filtering
mechanisms, which XXXXXXXXXXXX explained
were due to technical issues. XXXXXXXXXXXX explained
that SCIO asked Google's government relations team if this was
a deliberate modification of its filtering. XXXXXXXXXXXX
said Google had not disabled its filters, and SCIO accepted
Google's explanation. At present, according to a U.S.-based Google
representative, Google "continues to comply with the law in
China and is filtering Google.cn as (it) has been." The U.S.-based
rep did concede that Google's filter is undergoing changes, but
publicly Google is not "explaining the changing nature of
(its) filter" and maintains the filtering remains in
compliance with Chinese law.

GOVERNMENT REACTION COOL
--------------

3. (C) XXXXXXXXXXXX reports that the PRC still has not
directly addressed the firm's announcement with Google.
However, MFA spokesperson Jiang Yu addressed the Google
matter in a regular January 14 MFA press briefing (reported
Ref A),during which reporters barraged her with questions on
Google. Jiang stated the Chinese government has made its
position clear to the U.S. and asserted Chinese law
prohibited cyber attacks, including hacking. Jiang also said
China's internet is "open and the Chinese government
encourages its development." State Council Information
Office (SCIO) Minister Wang posted a web statement January
13, which, while not directly addressing Google, stressed
that the internet should be used to shape public opinion and
should comply with state control. Yao Jian, Spokesperson for
the Ministry of Commerce (MOFCOM) on January 13 said only
that MOFCOM would follow the Google matter closely. A MOFCOM
specialist on multinational investment policies was quoted in
the press as arguing that the Google case is unique and
should not be seen as relevant to other multinational
investments in China. Officials at the Ministry of Industry
and Information Technology (MIIT) declined to comment on the
case, claiming that they do not have enough information.

SPECULATION ON NEXT STEPS
--------------

4. (C) XXXXXXXXXXXX spoke January 13 with
XXXXXXXXXXXX, who opined that the Chinese
government was likely surprised by Google's
announcement of its potential withdrawal, and the
PRC would be unlikely to seek out talks with Google.
XXXXXXXXXXXX anticipates we will see a slow,
perfunctory attempt to engage between U.S.-based Google
representatives and the Chinese, but that, in
XXXXXXXXXXXX opinion the PRC has already
likely decided

BEIJING 00000105 002 OF 003

that Google is a company that "does not understand how to
work with China." Only if Google continues to accept China's
mandates would an accommodation be possible, according to
XXXXXXXXXXXX. XXXXXXXXXXXX also predicted that,
failing an agreement, the Gmail accounts of Chinese users would
suffer sporadic interruptions of access, and the potential for a
complete blockage of Google.com is also not out of the question.


5. (C) A highly-regarded long-term local industry analyst
XXXXXXXXXXXX, also saw Google's actions as leading
quickly to its withdrawal from the Chinese market.
XXXXXXXXXXXX speculated to Econoff that Google may
have an extremely limited window to seek a solution, given
the increasing "maniacal" posture of elements of the Chinese
bureaucracy with respect to information control and discriminatory
policies and practices toward foreign elements. XXXXXXXXXXXX
also opined that Google's withdrawal from the market would
undermine competition here and therefore innovation in
China's internet industry. He saw Baidu's success as a
direct result of competition with Google and other western
companies; without that competition, Baidu and other Chinese
companies would likely lose their competitive edge in the
long run. Separately, XXXXXXXXXXXX was quoted in the
media as saying "there has been this received wisdom tha
no one can afford not to be in China, but that is being
questioned now."

BUSINESS COMMUNITY REACTIONS
--------------

XXXXXXXXXXXX


7. (SBU) XXXXXXXXXXXX told XXXXXXXXXXXX
January 14 that logistics had made it impossible for its Board to
clear and release a press statement January 13 XXXXXXXXXXXX
The Committee has drafted a statement on the security and
free flow of information that it now hopes to clear and
release within twenty-four hours. XXXXXXXXXXXX noted
that in seeking to remove all filters from its China-based search
engine, Google has firmly positioned itself publicly and will
not be able to back down. XXXXXXXXXXXX believes
Google's China exit is imminent, and would only at the
margins affect information flows, IT services, and the
development of competition in China. He did hope that
this matter would force the PRC to use greater caution
before implementing policies harmful to the business climate.


8. XXXXXXXXXXXX thought Google, however, had backe
itself into a corner from which it could not likely exit, given
the Chinese reputation for non-compromise in such matters.


9. (SBU) Jack Ma, Chairman of Chinese internet giant Alibaba
(with ownership links to Yahoo China, which has faced its own
difficulties in China) struck an exhortatory chord in media
interviews: "Giving up is the biggest failure. Nothing is
easy. It is admirable if one can still do well no matter how
many difficulties are on the way."

XXXXXXXXXXXX

HUNTSMAN