Google threatens to pull out of China

Wow, The New York Times is reporting that Google is considering pulling out of China if an amicable agreement cannot be reached between it and the Chinese government:

Since arriving here in 2006 under an arrangement with the government that purged its Chinese search results of banned topics, Google has come under fire for abetting a system that increasingly restricts what citizens can read online.

Google linked its decision to sophisticated cyberattacks on its computer systems that it suspects originated in China and that were aimed, at least in part, at the Gmail user accounts of Chinese human rights activists.

Those attacks, which Google said took place last week, were directed at some 34 companies or entities, most of them in Silicon Valley, California, according to people with knowledge of Google’s investigation into the matter. The attackers may have succeeded in penetrating elaborate computer security systems and obtaining crucial corporate data and software source codes, though Google said it did not itself suffer losses of that kind.

While the scope of the hacking and the motivations and identities of the hackers remained uncertain, Google’s response amounted an an unambiguous repudiation of its own five-year courtship of the vast China market, which most major multinational companies consider crucial to their growth prospects. It is also likely to enrage the Chinese authorities, who deny that they censor the Internet and are accustomed to having major foreign companies adapt their practices to Chinese norms.

The company said it would try to negotiate a new arrangement to provide uncensored results of on search site, google.cn. But that is a highly unlikely prospect in a country that has the most sweeping Web filtering system in the world. Google said it would otherwise cease to run google.cn and would consider shutting its offices in China, where it employs some 700 people, many of them highly compensated software engineers, and has an estimated $300 million in annual revenue.

This is huge news, although the repercussions won't be known for decades. China is considered by many to be the largest growth market and Google is suggesting that it will give up on it.

Google's market share is far below its competitors in China but I believe it is still over 20% (more than what Bing and MSN have in America.) As the NYT article mentions, Google will be giving up as much as $300 million in revenue, which the Google legal head, in a CNBC interview, remarked as immaterial.

If Google does pull entirely out of China, it's not clear to me if the Chinese government will block all external sites related to Google.