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China at an inflexion point

The Google crisis may unravel the US Inc-Beijing alliance that helped power China’s rise.

world Updated: Mar 24, 2010 22:44 IST

The showdown between Google and China marks a turning point in one of the great alliances of the late 20th century – between western capitalists and Beijing’s authoritarian system.

After Google’s audacious decision to confront China on the issue of censorship, officials here insisted on Tuesday that the internet giant’s case was an isolated one and would not affect China’s opening to the West or its market-oriented reforms. Analysts say the incident underscores China’s willingness to stand up to the West as a consequence of its meteoric economic rise. It doesn’t need western investments as much as it once did.

Joe Studwell, an author who has followed the perils for western businesses in China for more than a decade, says western companies now view China with a “new realism”.

Businesses understand that the “unspoken arrangement with China is coming unstuck”, he adds. China is not opening its markets, nor is it allowing its currency to increase in value, as many had assumed it would.

“The Google affair is both a catalyst and evidence of change,” says Arthur Kroeber, managing director of Dragonomics, a Beijing-based economics firm.

“We are at a turning point. It had been very, very unusual for foreign businesses to say anything too negative about China because the opportunities here were too large.”

Indeed, for decades, western businesses have been Beijing’s closest friends. When the US Congress railed against China over human rights issues and threatened to revoke its Most Favoured Nation trading status in the 1990s, the American Chamber of Commerce in China and other groups flocked to Washington to plead Beijing’s case.

The last major western company to openly confront the Chinese government was Levi Strauss, which withdrew from the country over what it called China’s “pervasive violation of human rights”.

But more recently, western businesses have begun to voice concerns about their treatment in China. The European Chamber of Commerce has issued reports over the past several years that say China’s business environment is deteriorating. One report accused China of embracing “economic nationalism”; another said China had effectively halted economic reforms.

“In 2009, China was one of only two major growth markets in the world (India was the other), but the door here isn’t opening wider, it’s narrowing,” says the chamber’s president Joerg Wuttke. “China talks about opening up, but in fact local implementation is not just really bad, it’s worsening.”

Even the American Chamber of Commerce in China has got into the act. On Monday, it issued a report that said business confidence among 203 members surveyed was at its lowest point since polling began four years ago. And in December, the US Chamber of Commerce in Washington took the unprecedented step of organising a joint letter, signed by 33 business associations from around the world, criticising China for a plan that would force foreign companies to hand over their prized intellectual property and trademarks to China if they wanted to keep selling goods here.

Chinese officials insist the Google case is unrelated to the broader business climate here. After the internet giant made its announcement on Monday, Microsoft indicated that it would continue to “comply with the laws in every country in which we operate,” disappointing human rights advocates.

How China treats Google going forward is widely viewed as a test case. The government could force the firm out of China entirely, or it could allow Google to be a symbol of a new kind of relationship with western companies – one in which foreigners can do business here without feeling compelled to kowtow to the political system. Many analysts view the latter scenario as highly unlikely.

Washington Post Staff Writer

In exclusive parternship with The Washington Post