Quite a bit of attention has been paid to what Google may lose by exiting the Chinese market. ZDNet bloggers, along with countless news outlets have been covering the evolving Google-China story in detail and it all comes down to neither Google nor China being willing to budge in their positions on censorship. Many would argue that Google has a responsibility to try and influence the Chinese government towards a freer society, even if that means walking away from an enormous growth market. ZDNet's Ed Burnette argues quite passionately that continuing to do business in and with China, playing by China's rules, is absolutely necessary to maintain a connection with the most populous nation on earth.
One has to wonder, however, given the dominance of Baidu (China's state-friendly search engine) and the relatively crippled versions of Google services that Chinese users have experienced, if China will really feel the impact of a Google exit. Sure, Google is a (the?) dominant force on the Internet and in the cloud outside of China. But within this billion-plus nation, users can only access a fraction of Google Apps, YouTube is blocked by China itself, and, until this week, search results and News were heavily censored. Where was Google adding value for the Chinese people?
It did let users know when their search results were being filtered and was arguably somewhat less restrictive than Baidu. Android is coming to Chinese phone makers and telecommunications companies and that doesn't appear to be changing. However, many western companies are actively recruiting in China and/or setting up development shops on the Chinese mainland because really good programmers are incredibly easy to find. Given the entrepreneurial spirit enabled by Chinese capitalistic reforms, it seems pretty likely that cloud-based services are going to emerge in China with or without Google.
So why not just say goodbye to Google? Will the Chinese government (or the Chinese economy for that matter) really suffer? It doesn't take a Harvard economist to figure out that Google will feel the hit long term if they are locked out of the biggest Internet market in the world. Even without China, though, they'll still be raking in the billions. It may be harder to be cavalier 5 years from now when potential ad revenues out of China dwarf those in the western world, but that's another discussion. I want to know why China hasn't just walked away from tense talks with Google.
No matter how carefully the Chinese government attempts to protect its interests, though, China needs the west. China needs trade partners in its journey from a manufacturing economy to a knowledge economy. Given China's vast human resources, this will be a long road. Closing its doors to Google is not just symbolic (symbols matter little to consumers who aren't about to stop shopping at Walmart and buying Chinese exports), but represents a conscious decision to close itself off after many years of slowly opening to partners.
Baidu is a perfectly fine search engine. Competition, however, is vitally important in an increasingly capitalistic society. Would Google be as good as it is here in the States if it didn't have Bing and Yahoo nipping at its heels? Shutting Google out of China means that China is retreating from (rather than actively participating in, and sometimes dominating) a global economy. Isolationism, though useful for totalitarian governments, will hardly promote economic growth. Forcing Google out of the country is a fairly powerful act of isolationism.
Perhaps the best question of all, though, is how can China now peacefully coexist with Google (and other knowledge-based companies like it who want to operate on the mainland) while still saving face in this most recent row? Eric Schmidt hinted that "something will happen soon." That something will either be the beginnings of a different sort of partnership or the start of another figurative Great Wall.