Google (Nasdaq:GOOG) has been attacked. According to the New York Times, last week somebody hacked into its systems, and may have stolen corporate data and source codes. Google is blaming China.
As many as 34 companies may have been attacked by China’s Internet police last week, and Google is threatening to stop censoring its search results and exit the country altogether.
This is a time when we are reminded about the differences – and difficulties – of doing business in China.
Google and Yahoo! (Nasdaq:YHOO) both entered the Chinese market in 2006. They both had to agree to strict rules from the Chinese government. For all the progress China has made in opening up its economy, it still clings to the belief that it can control what the Chinese people see, read and believe.
So Google and Yahoo! had to agree to “censor” the Internet because certain search results will vividly show evidence of things that the Chinese government would rather pretend didn’t exist – like Tiananmen Square. A search for Tiananmen Square leads the Chinese Internet user to a blank page. At least it did…
Google has reportedly stopped censoring the Internet in response to the security breach. Chinese people can now see the pictures and read the reports of that awful day in 1989.
*****This is a bold move for Google. China has 300 million Internet users. And that number will grow to 1 billion or more in the next few years. Many Western companies believe that doing business with China is critical for growth.
Right now, Google only does around $300 million in revenues in China. And it’s been losing market share to Baidu.com (Nasdaq:BIDU). Walking away from China won’t hurt much now. But down the road, Google could be missing out on a huge amount of growth.
From that perspective, Google threats sound impetuous and immature. They are certainly idealistic. But Google’s stance is putting the problems of doing business with China squarely into the spotlight.
Even though China signed the WTO agreement in 2001, it still has not lived up to the agreement. China has been consistently criticized for unfair trade practices that favor state-run companies, failure to protect copyrights and patents, and restrictive export policies for certain minerals.
Many governments around the world have called on China to change its policies. Google is the first company to actually do something about it. The unfortunate thing for Google, though, is that it probably needs China more than China needs it.
*****As for me, I don’t plan to stop investing in Chinese companies. I’m here to help you make money in the stock market. And quite simply, Chinese stocks offer some of the best profit opportunity anywhere in the world. If China favors its state-run companies, than I say, invest in China’s state-run companies

Published by Wyatt Investment Research at