October 5, 2020

Asia

US/CHINA: Google anti-monopoly probe shows Beijing’s approach to retaliation

BY Gabriel Wildau

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Chinese market regulators are reportedly considering an anti-trust investigation against Google for allegedly exploiting control over the Android mobile operating system to suppress competition. Though details remain sketchy, the action against Google, if it proceeds, would match China’s strategy of retaliation as previously discussed.

Several factors make Google a suitable target from Beijing’s perspective. First, the company’s operations in China are minimal, since the Great Firewall blocks access to Google’s search engine and most other services. Unlike, for example, US aviation or semiconductor groups, Google is not a significant provider of advanced technology to China’s domestic economy, nor will loss of business inside China significantly dent Google’s global revenues. Despite being inaccessible inside China, Google receives significant advertising revenue from Chinese companies seeking exposure to potential foreign customers, but this business is unlikely to be affected by anti-trust penalties related to Android’s market dominance.

Second, European regulators have already penalized Google for anti-competitive behavior related to the requirement that phone makers pre-install Google apps while not offering non-Google search engines. A Chinese anti-trust probe would therefore not be viewed entirely as an act of political retaliation, bolstering Beijing’s claims that Chinese regulators act fairly and according to law.

Third, allegations of anti-competitive behavior by Google would indirectly address the US government’s efforts to cripple Huawei by denying it access to key US technology. The US Commerce Department’s use of its entity listagainst Huawei has forced Google to stop supporting new Huawei devices with licensed versions of Android and core Google apps like Google Play, Gmail, Google Maps, and YouTube. Huawei introduced a new mobile operating system, HarmonyOS, as a replacement, but a phone that lacks access to Google services will be unattractive for most consumers outside China. From this perspective, Android’s market dominance magnifies the impact of the Commerce Department’s blacklist.

Finally, an investigation of Google could also provide Beijing with a bargaining chip in future negotiations with Washington. As previously noted, a President Joe Biden could seek to improve relations with Beijing, including by partially relaxing export controls on Huawei and other Chinese technology companies. But in this scenario, Biden would likely seek to protect himself against accusations from domestic critics that he is “soft” on China by showing that he has extracted concessions from Beijing. In addition to the possible concessions discussed in our previous note, the power to cancel an investigation against Google – or bring it to a favorable conclusion – could provide Beijing with another deliverable to offer to a Biden administration.