Google Could Pay Dearly for Catering to China

(Bloomberg Opinion) -- Eight years after it exited China over censorship and espionage concerns, Alphabet Inc.'s Google appears ready to compromise with the Chinese government in order to return. Last spring, the company reportedly began work on Dragonfly, a search engine customized for the China market that would block keywords such as “human rights” and provide Chinese authorities a means of tracking whoever is daring enough to attempt such searches. Development work accelerated after a December 2017 meeting between Google CEO Sundar Pichai and top Chinese officials, according to the Intercept.

This strategy of creating two products — one for China and one for the rest of the world — may seem like a pragmatic way to seize a piece of the world's largest internet market. In reality, the idea that one product can be insulated from the other is naive. All Google would be doing with Dragonfly is making itself more, not less vulnerable to Chinese interference.

Google's eagerness to return to China is understandable. The country is home to the world's largest number of internet users, many of its biggest and most innovative online companies, and a fast-growing artificial-intelligence sector with access to vast volumes of user data. The company has been seeking ways to break into the market since at least 2014.

It won't be easy. In 2010, when Google left China,the environment for internet companies was difficult. Since then, it's only become tougher. Foreign firms such as Facebook Inc. have found it almost impossible to set up shop, while Chinese companies have faced increasingly stringent and expensive barriers to operation, as well as frequent content crackdowns.

Some Chinese companies benefit from a market largely free of competition. But the moment they try to expand, they, too, find themselves having to balance the Chinese government's desire to censor information with a global audience's expectation that content be free and unfiltered. WeChat, the extraordinarily successful Chinese social networking app, tried to square that circle by identifying foreign users and giving them access to a wider range of information. Predictably, this jerry-rigged approach, combined with an app that was never properly localized, failed. WeChat remains a mostly China-only app.

Another approach is to do what Google is now proposing: Set up parallel, entirely separate services for China and the rest of world. This is the strategy employed by TikTok, the global version of the popular Chinese short-video and networking app, Douyin, owned by Beijing Bytedance Technology Co., Ltd. Rather than developing a single app for China and trying to sell it overseas, TikTok and Douyin were from the start given separate design and marketing teams.

When they launched in 2016, the two apps appeared to operate similarly. But the differences between them are profound. The Chinese app is subject to strict content oversight (including over Douyin's marketing materials), while overseas, the site's signature, self-made videos are largely unfiltered. In a move designed to appease Chinese regulators, TikTok prohibits registrations on phones with Chinese SIM cards.

Bytedance's gamble would seem to have succeeded. The combined apps have 500 million users and, during the first quarter of 2018, TikTok was the most downloaded app on Apple's App Store, helping it and Douyin become global phenomena.

That hasn't bought Bytedance a reprieve from government interference, however. In April, officials ordered the company to shut down a popular humor site, halt downloads of news apps and suspend livestreaming on Douyin. The crackdown seems to have scared Bytedance straight: In May, it preemptively banned Peppa Pig from Douyin after the Communist Party's flagship newspaper expressed concerns about how “gangster” the children's cartoon character was.

While TikTok hasn't been targeted yet, the government is under no illusions that it's an independent company operating on foreign soil. If officials wanted to pressure Bytedance further, they could order the company to shut down the app at any time.

The reverse is true for Google: If the company annoys the government with its actions overseas, Dragonfly would offer up an easy target for retaliation. The government has hardly been shy about using its leverage over foreign companies to advance its political ends. Earlier this year, it browbeat more than 40 airlines into changing how their websites referred to Taiwan, an island territory which China claims for itself. Refusal could have resulted in commercial and operational penalties, including potential boycotts and denial of airport ground services.

The first page of Google's uncensored search results on Taiwan don't conform to the Chinese government's naming conventions. Would Party officials threaten to take down Dragonfly if the company didn't make amends? It's hardly out of the realm of possibility, which raises questions about Google's long-term ability to sustain any China business. Google executives seem willing to take that risk. Shareholders might want to ask if it's worth it.

To contact the editor responsible for this story: Nisid Hajari at nhajari@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Adam Minter is a Bloomberg Opinion columnist. He is the author of “Junkyard Planet: Travels in the Billion-Dollar Trash Trade.”

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