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Google’s Mysterious Threat to Pull Out of China - Is a Covert WAR Brewing

between the U.S. and China?

In an extremely intriguing development today Google threatened to close down its China
operations after unearthing a highly sophisticated attack aimed at accessing gmail accounts
of Chinese human-rights activists. According to Google the attacks originated in China and
included accounts of U.S. and E.U. based activists. Google made the announcement today in
its blog-post titled "A New Approach to China".

In mid-December, we detected a highly sophisticated and targeted attack on our

corporate infrastructure originating from China that resulted in the theft of intellectual
property from Google. This attack was not just on Google. As part of our investigation we
have discovered that at least twenty other large companies from a wide range of
businesses--including the Internet, finance, technology, media and chemical sectors--have
been similarly targeted. We are currently in the process of notifying those companies, and
we are also working with the relevant U.S. authorities.

By labeling these attacks as "highly sophisticated" Google is essentially pointing a finger at

the Chinese government/ intelligence agencies. That the cyber attack has been elevated to
a U.S. national security threat level, is evidenced by the State Department's involvement,
and a statement by Secretary Hillary Clinton in which she asked Beijing to respond to
Google's allegations. A report in the Telegraph offered further details:

The State department said that Mrs Clinton had met with executives from Google and
Microsoft, as well as with Cisco Systems, which provides much of China's internet
infrastructure, to discuss how to stop countries from "stifling" access to information.

Most interestingly, the Telegraph went on to point out that:

Next week the US is to launch a new technology policy to help citizens in other countries
to gain access to an uncensored internet.

Returning to Google's announcement, Google's blog outlined the reasons why Google has
decided to potentially pull out of China completely:

We have taken the unusual step of sharing information about these attacks with a broad
audience not just because of the security and human rights implications of what we
have unearthed, but also because this information goes to the heart of a much bigger
global debate about freedom of speech.

We launched Google.cn in January 2006 in the belief that the benefits of increased access
to information for people in China and a more open Internet outweighed our
discomfort in agreeing to censor some results. At the time we made clear that "we will

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carefully monitor conditions in China. These attacks and the surveillance they have
uncovered--combined with the attempts over the past year to further limit free speech on
the web--have led us to conclude that we should review the feasibility of our business
operations in China. We have decided we are no longer willing to continue censoring our
results on Google.cn, and so over the next few weeks we will be discussing with the Chinese
government the basis on which we could operate an unfiltered search engine within the law,
if at all. We recognize that this may well mean having to shut down Google.cn, and
potentially our offices in China.

We do not doubt the veracity of Google's claims. Cyber warfare is the covert game nations
play, and these attacks are nothing new. Several U.S. military and scientific institutions
such as NASA - with far more sensitive national security information have been the target of
hacking from China. In November 2008, a bipartisan U.S. Commission to analyze economic
and national security relationship with China concluded that, "China has stepped up its
capacity to penetrate U.S. computer networks to extract sensitive government and private
information".

However, what we question is the following:

1. Why is Google threatening to close operations at this juncture - i.e. four years after
they entered China knowing full well that they will have to censor information to
comply with Chinese government regulations. In 2006, Google seemed to completely
disregard the human rights and freedom of speech considerations arguing that "the
benefits of providing increased access to information to Chinese citizens outweighed
the discomfort of censorship". Then why the sudden about face and embracing of
altruistic values such as "freedom of speech" now?

2. If the U.S. Government has not stopped doing business with China, despite its
Communist status, countless cyber attacks, stealing of state secrets, human rights
abuses and lack of freedom of speech and democracy, then why the about face by
Google?

3. The link between the Chinese Government's (implied involvement but not explicitly
stated by Google) hacking of gmail servers to extract dissident information and
Google closing its entire operation in China (search engine and cell phones running
on Android) is tenuous and illogical at best. While the attacks are no doubt serious,
we wonder if they are serious "enough" for a company like Google to forsake the
world's largest internet subscriber market.

4. So far Google has not had much success in China's internet search market having
captured only 1/3 market share. Its chief competitor Baidu.com controls the
remaining 2/3. In addition by pulling out of China Google does not stand to lose too
much, as pointed out by Bloomberg: "A pullout would deprive Google of an estimated
$600 million in annual revenue [out of total revenues of $24 billion, thus a very

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 small percentage] and may help domestic Baidu extend its lead in the world‟s
largest online market. “There‟s no other competitor, so if Google pulls out, Baidu is
left by itself,” said Erwin Sanft, an analyst at BNP Paribas SA in Hong Kong".
Now Google has to have factored in the scenario that the Chinese government calls
its bluff and asks them to "leave".

5. It is highly unlikely that the Chinese government will acquiesce to allowing Google
to operate an unfiltered search engine, especially when Baidu, a domestic Chinese
player (that the government can control), holds a 2/3 market share. In the current
shaky economic scenario the Chinese government will try its level best to keep a lid
on citizen's dissent. To do this it has unfortunately resorted to severe censorship of
the Internet banning services such as facebook, twitter and youtube. Even so, the
Chinese government is not illogical in this endeavor - it is well aware of covert
campaigns launched by the U.S. government via facebook and twitter in Iran to help
overthrow the Iranian government. China is not about to let the U.S. push the same
fate on its own government.

So in our opinion, what all this posturing boils down to is the fact that a new and dangerous
war-front has opened up - one between the U.S. and China. Currently the war is economic,
political and covert in nature. The U.S. government knows that the nation‟s fiscal situation is
abysmal and that China holds the trump card over its fate by being its largest creditor. In
addition faced with rampant joblessness, a weakened U.S. consumer is more dependent
than ever, on cheap goods manufactured in China. While cheap Chinese imports allow the
Fed to keep a lid on domestic inflation, they do not alleviate rampant U.S. unemployment.
Protectionist pressures are growing on a desperate U.S. government struggling to fix the
unemployment situation. This tussle has led to the imposition of trade sanctions against
Chinese companies on non-strategic sectors like certain steel and tire imports.

To top this situation neo-con hawks in the U.S. government and military accustomed to the
nation being the world's sole super power, fear the rapid rise of China. They fear the global
domination of a Communist nation and this in turn has led to naval and airspace incursions
into Chinese territory by the U.S. military, as well as the geo-political blockages by the U.S.
to severe Chinese access to the world's mineral and oil resources. The current crisis in the
Middle East an oil rich region is a direct result of this strategy.

As the economic situation deteriorates, these tensions are only going to escalate. While the
U.S. government is not going to start a military excursion with China anytime soon, strategy
hawks know that one way to slow the rise of China and reduce its grip on America's
economic collar is to create a suitable diversion for the Chinese government. The U.S.
intelligence apparatus, which has several decades of experience staging coups and
overthrowing democratically elected governments across the world, is now staging a similar
policy with China.

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China's non-democratic set-up and autocratic communist party rule is its Achilles heel in its
rise as the world's leading economy. With China's economy deeply intertwined with
declining U.S. consumption, huge swaths of its population who are employed in
manufacturing and related sectors stand to lose their jobs. Couple this with the fact that
there exists a complete lack of democracy, freedom and human rights in China. The Chinese
government knows that young unemployed people, especially those whose rights have been
suppressed, always make a deadly cocktail. It wants to avoid setting off this bomb at any
cost. The Chinese government has unfortunately responded to this threat by clamping down
on information provided via the internet.

And this is the loophole the U.S. government is now trying to exploit in its pursuit to
weaken China. This explains the recent "freedom of speech" campaign launched by the U.S.
to "educate" the Chinese people to revolt against their own government. Barack Obama
fired the first salvo when he visited China last year where he told a town hall gathering that
he was "a big supporter of non-censorship". He went on to state that "These freedoms of
expression, and worship, of access to information and political participation - we believe
they are universal rights. They should be available to all people, including ethnic and
religious minorities, whether they are in the United States, China or any nation." Now the
State Department along with Google (whose CEO Eric Schmidt is a huge supporter of
Obama) have joined the "freedom of speech" chorus, which will only grow louder in the
coming days.

We would like to point out to our reader that we do not support China's autocratic
suppression of its people's freedoms. What we are merely trying to point out here is that
there a deeper strategic (and frankly on some level inherently evil) rather than altruistic
motive behind Google and President Obama's "freedom of speech and democracy" lecturing.
If China is truly to try to become a global power it needs to willingly unleash democratic
forces within its borders. The Chinese government would be safer doing this on their own
terms rather than have their hand forced by American propaganda (at which point
widespread civil unrest in China is a given). The Chinese people would do well to pay
attention.

About the Firecracker Report

The Firecracker Report is a financial and geopolitical analysis blog started by a team of ex-
Wall Streeter‟s with extensive banking and investing experience. We strongly feel that in the
current era of corporatized propaganda driven news the „real‟ news often goes unreported.
We have therefore chosen to lend our voices and join the growing ranks of independent
bloggers that aim to bring insightful commentary and analysis to their readers.

We invite you to visit our blog and would love to hear your thoughts and comments. We can
be reached at firecracker.report@gmail.com

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