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More Power to Google in China: Why Does US-Backed Get a Pass?

Baidu is often described in the press as China's "home-grown" internet portal. But its stock trades on the NASDAQ exchange. And it is today majority-owned by institutional investors with names like Fidelity and Morgan Stanley.
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It's not every day that a public corporation engages in what amounts to civil disobedience. But that, in effect, is what Google has done in halting censorship of search results on -- the Chinese language version of Google that is available inside China -- in defiance of China's laws.

More power to Google. Its unilateral action, coupled with the threat to withdraw from the country if necessary, creates an awkward situation for Chinese officials. However, the impact would be vastly greater if China's government faced, not just one internet search engine determined to reject censorship, but a united front consisting of both Google, the number 2 player in the Chinese market (with a 36% share), and Baidu, the leading search engine (with a 58% market share).

Baidu is often described in the press as China's "home-grown" internet portal and search service, as though its native parentage somehow explains the company's reported pliancy in acquiescing to government censorship demands. In fact, however, Baidu's financing is as American as the dot-coms of Internet 1.0.

Baidu received its initial funding from American venture capital firms, including Draper Fisher Jurvetson and IDG Technology Venture. (Google itself was an early-stage investor, but sold off its interest in Baidu as it was deciding to expand into the Chinese market). Baidu was taken public by American investment banks and law firms. Its stock (symbol: BIDU) trades on the NASDAQ exchange. And it is today majority-owned by institutional investors with names like Fidelity and Morgan Stanley.

Not surprisingly, Baidu's stock rose sharply on news of its competitor's confrontation with Chinese government authorities.(Google's stock declined, but not much). Baidu's American investors will reap a windfall if, as seems plausible, Baidu soon finds itself a monopolist in the business of internet search in the world's biggest internet market. But should they?

From a traditional business standpoint, the answer is clearly yes. But from a standpoint that assigns a high value to corporate integrity, Google's action may reveal a better strategic path. A Baidu that has ambitions beyond China's borders could have greater long-term value if it is not seen as doing the bidding of China's bureaucrats.

While online reaction to Google's announcement ranges from digital hallelujahs to the criticism that Google should have stood up to China long ago, Baidu and its American investors get a free ride. This is puzzling, especially since inaction by Baidu is not merely a position of neutrality, but greatly strengthens the government's hand in its dealings with Google.

Imagine an alternate scenario in which, say, Silicon Valley VC Bill Draper, whose firm once owned as much as 28% of Baidu, organizes major US investors to pressure Baidu's Board to stand together with Google against China's censors. That would be extraordinary---corporate civil disobedience squared.

China in that scenario would face a most unpleasant choice: To allow its walled-off version of the internet to lose much of its value as essential infrastructure for economic development; or, to give up substantial control over what its citizens can, and cannot, see.

Baidu should follow Google's example. But don't hold your breath.

Peter Scheer, a lawyer and journalist, is executive director of the First Amendment Coalition, a nonprofit advocating free speech and government transparency. FAC has petitioned the US Trade Representative to use international treaties to curtail China's censorship of the internet.

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