The First Day in Brief: Healthcare 101, China

Monday, 3/22/2010

The Healthcare reform bill has passed the House and is waiting for Presidential signature. This bill will have far-reaching effects even though a revision still must pass the Senate. The background on this bill has already been synthesized in other sources, and a comprehensive analysis can be found here by CBS news.

While the Healthcare Reform Act has been covered to exhaustion in mainstream news, a story just breaking today concerns Google's defiance of Chinese censorship requirements in response to allegations that China supported hacking attacks against gmail accounts. The story was reported here by CNN. The Morning Briefing's purpose is to provide not just news reporting but also analysis of the effects of world events. What follows is our first analysis on the Google censorship conflict.

CHINA: Google action to result in growth of dissent, government backlash

Google's decision to reroute Chinese traffic to its Hong Kong servers, thus circumventing censors placed by the company on its search results by request of the Chinese government. While government censors remain in place, which bar Chinese users from clicking on links found on Google, search results now show results for previously blocked content and also feature their descriptions. Google's decision provides domestic internet users, of which there are over 350 million, with the ability to get information, albeit limited, about events and conflicts previously silenced by the government. We expect this initial openness to cause some popular dissent within the Chinese populace, mainly at what will appear to be a growth of government control.

However, we believe that the access granted by Google's removal of censors will be short-lived. The Chinese government already maintains censors on many web sites, and, while Google searches will show those sites in its results page, those links will still be blocked to users. In addition, Chinese officials have historically been quick to react to threats to public order, and therefore we would expect a quick fix to be developed, even amounting to a temporary blockage of Google's services in China. This move would be strongly supported by Google's biggest Chinese competitor, Baidu, which has seen its market share in China drop since Google began service in the country. Baidu actively censors its results in accordance with Chinese law, and therefore stands to gain back some of its lost marketshare in due to Google's actions.

Another possible scenario would be the permanent removal of Google services from China. If Google and the Chinese government fail to resolve this crisis, the Chinese may resort to a complete ban on Google's services in the country. This would be met with strong support from Baidu and likely lead to further censorship. If this scenario were to transpire, we also expect it may herald further restrictions on businesses working in China. In response to this crisis, Chinese officials have released a public statement reaffirming the importance of adherence to Chinese law by foreign companies operating in the country. As China continues to grow as a international market, we expect that China will levy stricter requirements on foreign companies with Chinese interests.