Ethical Conflicts for Firms in China - Google Warns of China Exit over Hacking

Google Inc.'s stunning announcement that it might withdraw from China follows its long struggle with the ethical implications of doing business here, an endeavor which has forced it to make painful concessions to its public embrace of freedom of information.

Google entered the China market relatively late. If began offering a Chinese-language version of its search site in 2000, but didn't open offices in China until 2005--years after rivals like Yahoo Inc.--a delay that gave local rival Baidu.com Inc. time to gain dominance in the market.

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Google Warns of China Exit Over Hacking

Top Google executives were aware of the potential enormous opportunity in China, but feared that entering the market would conflict with their "don't be evil" mantra and their often-stated goal of making the world's information "universally accessible and useful." In intense internal discussions that lasted more than a year, Google executives agonized over how to reconcile the perceived business need to enter China with its principles.

Other big technology companies had already drawn criticism for accommodating the Chinese government. Cisco Systems Inc. was criticized by free-speech advocates for selling China equipment that helps government censors to block Web sites. Rights activists and U.S. politicians slammed Yahoo for helping Chinese police identify a Chinese journalist who allegedly used his Yahoo email account to relay to an overseas Web site the contents of a secret government order. The journalist was sentenced to ten years in prison.

In 2002, Time Warner Inc. decided to abandon a planned joint Chinese venture for its America Online division, with a top executive saying that it worried regulators would be able to demand copies of subscribers' emails.

But in the end, China's allure -- the country already had more than 100 million Internet users in 2005 -- proved too great. In 2006, Google launched a special version of its Web site for mainland China, google.cn, whose results were scrubbed to remove links to sites the Chinese government found politically objectionable.

"While removing search results is inconsistent with Google's mission, providing no information (or a heavily degraded user experience that amounts to no information) is more inconsistent with our mission," said a senior Google official at the time.

Many foreign companies operating in China have to grapple with ethical dilemmas, including how to deal with pervasive corruption and where to draw the line on cultivating the political connections that can help them navigate the country's complex regulatory terrain.

Media companies, however, face even trickier decisions since they operate in an area that is the traditional preserve of the Chinese Communist Party and face political requirements that conflict with their core mission and values.

In recent years, China has sought to build a commercial media industry, realizing the importance of information to the national economy. At the same time, however, the Communist Party views the media as an important tool of political control - a pillar of the one-party state with a critical role to play in preserving its grip on power.

Google and other information companies, by operating in the domestic Chinese market, have to accept controls similar to those imposed on their domestic counterparts.

Even though Google's Chinese Web