Comeback kid

Google exited China on principle but could be having second thoughts

A photograph of Xi Jinping with 28 of the top tech CEOs from America and China taken during his US visit last week has prompted much speculation about who was positioned where in the line-up. Yet perhaps just as telling was who was missing from the photo.

According to the Wall Street Journal, Google, the world’s second largest listed company by market capitalisation, had not been invited. The company famously withdrew from China in 2010 on the grounds that it would not self-censor content. At the time co-founder Sergey Brin likened China’s limited freedoms to those of the former Soviet Union, where he had grown up.

Fast forward five years and recent newspaper reports suggest Google is actively trying to re-enter China. The snub to its new CEO, Sundar Pichai, may show it still has a lot more work to do before it wins favour again in Beijing. Or it may be a sign that relations are evolving rapidly behind the scenes, but neither side wants to publicly draw attention to the fact.

Ironically Google’s China strategy is centred round a company which has been just as publicly snubbed by the US: Huawei Technologies. In 2012, a Congressional committee blacklisted the latter on the grounds that its telecoms equipment might provide a conduit for China to spy on the US.

The fruits of Google and Huawei’s new partnership were unveiled in San Francisco this Tuesday. Huawei is the manufacturer of Google’s new Nexus 6P smartphone, representing the first time the US firm has used a mainland Chinese partner.

In part this is testament to Huawei’s strong surge up the smartphone handset rankings. According to IDC data, it is now the world’s third largest manufacturer, with an 8.9% market share at the end of June compared to Apple’s 14.1% and Samsung’s 21.7% share. But with 48.15% year-on-year growth, its shipments are rising much faster than all of its rivals in the top 10, particularly Samsung, which was down 2.3%.

However tech analysts say the Huawei partnership also demonstrates Google’s desire to tap China’s huge domestic market and reassert control over its Android operating system. Most of China’s smartphone manufacturers, including Xiaomi and Lenovo, use variants of its operating system but not in licenced partnership with Google.

By contrast Huawei will use Google’s most advanced operating system called Marshmallow. It is also one of the few companies to be given access to the operating system that will power Google’s wearable device Android Wear.

Tech website The Information reports that Google wants Chinese handset manufacturers, including Huawei, to pre-load its app store Google Play onto their smartphones. None currently use Google’s ecosystem of apps, search and email because they are blocked in China. In Google’s place Baidu, Tencent and Qihoo 360 have all developed app stores that Google may now find hard to dislodge even if regulatory approval is forthcoming (tech websites say it has been trying to gain permission from Beijing since 2013).

The Information says Google has now agreed to provide apps which are acceptable on the Chinese side of the Great Firewall – if true, not a move it is probably keen to flag too publicly. To win over the developer community, it is also said to be offering a 70/30 revenue sharing split in favour of app designers. Other Chinese app stores typically take 70%.

Finally the tech website says Google will partner with ChinaPay, the same third-party payment provider that Apple currently uses.

From Huawei’s perspective the tie-up with the American internet giant not only provides it with the prestige of working with one of the world’s leading tech companies, but may also offer it an entry point into the US market. While it may be the world’s third largest handset manufacturer, Huawei only ranks 13th in the US with a market share slightly less than 1%.

The company also appears to be trying to shake off its solitary and secretive image by forging partnerships with many of the world’s leading firms. Earlier this year it began working with Deutsche Telekom over cloud storage and likewise with Volkswagen (a move that will make its handsets compatible with the entertainment systems used in VW’s cars).

The latest partnership added to its roster is Foxconn. ThePaper.cn says the Taiwanese company is spending Rmb25 billion ($3.9 billion) to build a 6th-generation low temperature polysilicon (LTPS) panel factory in Guizhou province. Huawei is committing Rmb5 billion to the project, which will make advanced screens.

Wang Yanhui Secretary General of the China Mobile League (CNMO) tells China Business News that Huawei’s move should be viewed as part of its desire to create the same integrated industry chains and ecosystems that Apple and Google have. He observes, “Apple has already invested in panels so it can maintain production quotas and stay ahead of the pack in terms of technology. Apple controls the industry chain and its own ecosystem. This is the foundation of its success.” He says Huawei hopes to emulate this approach.

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