The New York Times reported that Chinese authorities have already contacted Google's Chinese business partners, warning them they must obey the censorship laws.
Google has emerged as a staunch critic of the Chinese government's censorship of the the Internet and an opponent to its laws. This carries great weight in China. Being associated with Google in any way, could be seen as being bad for business inside China.
The Financial Times reported on Saturday, that Google is concerned about a government backlash and retaliation against its Chinese employees.
Google's Chinese employees could face discrimination in the job market. Just a few months ago, Google lost its head of Google China, Kai-Fu Lee departed in September. Maybe he saw the writing on the wall as Google founders, Larry Page and Sergey Brin, grew increasingly concerned about Chinese censorship.
Google's two months of negotiations with the Chinese government over changing its censorship laws did not go well. On Friday, a senior minister said Google must obey censorship laws.
The Chinese government can't have been happy with a foreign organization trying to threaten it with leaving unless it changed its laws. There is a bad history associated with foreigners forcing changes in Chinese laws. The British are notorious for forcing a law that made opium use legal in China.
The Chinese government is unlikely to look favorably on Google's non-search operations in China. It's opposition to its laws already marks it as an adversary.
For Western firms, an association with Google could be harmful. In early February, Reuters reported that Google is part of a Disney-led consortium seeking to buy a $100 million stake in Bus Online, a Chinese digital advertising company. Such deals require Chinese government approval. It will be interesting to see if Google's membership of this consortium sinks the deal, or if it is asked to leave.
Would the Chinese government go further in a retaliation against Google, and punish foreign companies for being associated with Google in non-Chinese markets?
With the Chinese Internet market exploding, many foreign firms are trying to build a presence in China. If those corporations fail to win Chinese government approval for their business ventures, they will lose out on sharing in the world's largest and fastest growing Internet market.
Partnerships with Google outside of China, could potentially affect a company's business prospects inside China.