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Google's tactical retreat Add to ...

Google is keeping its research and development operations in China, but moving its Chinese-language search site offshore. Even though it was met with a harsh official response, Google's artful compromise could be a model for companies looking to be more constructively engaged in China.

Search is Google's raison d'être, its core function, and the source of most of its revenue. Google had allowed its search results to be filtered by China for years, but a cyberattack on Google's e-mail users, originating in China two months ago, prompted a review of Google's operations there.

By one way of looking at it, Google's shuttering of its China-based site is a rational economic decision. If, due to local restrictions, it must dilute its local product, it can choose to import an unadulterated product from elsewhere (in this case, by directing Chinese users to its uncensored Chinese-language site operating out of Hong Kong).

But the product being adulterated, and then imported, is information, and access to it. In a country where that commodity is subject to considerable government control, every economic decision becomes a political decision. Indeed, not just search, but the social elements of Google's other product offerings, especially YouTube and its blogging platform, are also blocked.

China's hardball response - the government threw additional filters on searches done in China through Google's Hong Kong site, while Chinese companies moved to dissociate themselves from Google - not only hurts Google, but also sends a message to other corporate actors who might try to mimic Google's path.

At the same time, the government's move may backfire. Google is one of the world's leading technological innovators. As China engages more with the world economically, its consumers will come to use and demand Google's products. Though it is a distant second in online search in China, behind Baidu, Google's continued footprint and ongoing research operations in China will be visible reminders to the regime of where the future lies: Despite its protestations, its censorship may bring it into economic and political peril later on.

The lesson, to formally respect Chinese decision-making and seek growth in China, while pushing the envelope elsewhere, is one that many Western countries are already familiar with. For example, they may, in one and the same trade mission, raise human-rights concerns while at the same time signing new investment agreements.

Not every company's products are as tied to politics as Google's are. But Google's move should show that there is a path to being active in China without playing down human rights or labour and environmental concerns - even if that means costs in the short run.

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