Jeremy Warner: Is Google's self-censorship a price worth paying for entry into China's giant market?

What price should companies be willing to pay to get into the world's biggest growth market, China? The question has been given added weight here in Davos by Google's announcement this week that it is to enter the Chinese market with a self-censored search engine, which will remove all reference to Tiananmen Square and other matters sensitive to the ruling regime.

For a company whose whole business model is based on freedom of information, this is indeed a mighty compromise, so why was it made?

One of the more endearing spectacles of this year's World Economic Forum is that of Google's two, almost impossibly young, founders, Larry Page and Sergey Brin, sheepishly wandering the conference centre, faintly overwhelmed and uncomfortable with the level of attention and praise being heaped upon them.

They have become the world's latest business celebrities, feted wherever they go and treated with a level of awe and fascination which as far as the business world is concerned is usually reserved only for the likes of Bill Gates and Rupert Murdoch. To introduce censorship into their search engine is the internet equivalent of the betrayal felt by the folk world when Bob Dylan went electric. How does it feel for these personifications of cyberspace cool suddenly to become the object of derision on thousands of blogs?

Mr Page is understandably reluctant to talk, but his partner, Sergey Brin, is more forthcoming. It's horrible, he feels terrible about it, and he can easily understand why everyone is so upset.

But some information is better than no information, and the move, like China's political evolution itself, should be seen as just a stepping stone to a more acceptable future.

As his name suggests, Mr Brin is of Russian origin, and he underlines his stance by suggesting that had Russia had even a censored version of Google back in its communist days, change might have come about more rapidly.

Even so, there's still a lot of latent scepticism in Davos about investment in China, not just because of the country's appalling human rights record, but also because of its still casual attitude to intellectual property rights and Western standards of commercial law. This is reinforced by the experience of the early Chinese pioneers, where much investment and technological know-how went in but very little ever came out.

Yet this view of China is perhaps becoming an outdated one, and though many businesses will find the country culturally too alien to want to support it, few can ignore its explosive market potential. As things stand, economic and commercial change in China is occurring at a much faster rate than political reform.

The dilemma facing China's political leaders was put best here at the WEF by Cheng Siwei, the vice-chairman of the standing committee of China's National People's Congress. Democracy was the final goal, he told one session, but China had to go step by step. There were anti-Chinese groups trying to disseminate suspicion about the country's policies that might be potentially destabilising, so the regime had to maintain some control.

Business investors in China take a similarly pragmatic approach. Sir Richard Branson, who is in the final throes of negotiating a major investment in China for his Virgin Mobile brand, tells me during a fleeting conversation between meetings that he is well aware of the perils, but he judges the risks of not investing in China, and therefore getting left behind, as a good deal higher than those of plunging in. "Can you afford to ignore China? It's like saying you can afford to ignore the internet. I don't think so."

Bill Gates, chairman of Microsoft, is in the same camp. "There are more than a billion of them [Chinese]", he says bluntly, "so I figured there must be quite a lot of clever and ambitious people there. People expect countries to become democracies before they become rich, but it doesn't work that way. As it becomes richer, China will have more and more freedoms."

For Microsoft, the policy of inclusion is already paying off handsomely. Beijing is now Microsoft's most productive research facility worldwide. Much the same thinking drives Virgin's renewed interest in China. Mobile phone penetration is low by Western standards, but the sheer size of the population means there are already more mobile phones in China than America. India is also experiencing a surge in direct foreign investment, yet despite the advantages of democracy, such inflows are still running at less than a fifth of those enjoyed by China. In the end, the bottom line determines business investment. The bottom line will also eventually drive the movement towards democracy in China.

Davos has got the mood right

Davos provides as good an opportunity as any to take the pulse, to read the mood, of the international business community, and I can report that, despite growing concern over global trade imbalances, it's more optimistic and upbeat this time around than I've known it at any stage since the January 2000 meeting. This, it might reasonably be thought, is a bad sign, for perhaps inevitably, Davos tends to be more reflective of experience in the year just past than a reliable barometer of the year ahead. The year 2000, it will be recalled, marked the very pinnacle of the dot.com boom. Within months, the sectors that had fed the bubble were in meltdown. The terrorist atrocities of 9/11 and recession in America followed in swift order. The optimism of Davos turned to despair. Is history about to repeat itself?

There are marked similarities. Nobody walking the labyrinthine corridors of the Davos conference centre would be left in any doubt we are in the midst of a second technology boom. It may be more solidly based than the last one, the markets for it may be more mature, and the applications are undoubtedly more user-friendly, obviously saleable and valuable. Yet there is the same manic approach to anything with a digital label, the same awestruck belief in the power of technology to save the world, and perhaps most worrying of all, an almost reckless appetite among financiers to fund it.

Even so, I cannot help but think that the Davos mood has got it about right this time around. The world has got better at weathering crises, from an economic perspective at least. This is the most powerful lesson of the past five years, and there's no reason to believe the present period of relative stability is about to come to an end. To the contrary, the 2 billion people who through China and India are for the first time buying into the global economic system is cause for great hope and optimism. Business has already realised this, even if the wider population, which still generally regards these emerging economies as more of a threat than an opportunity, has yet to get the message.

Surveys and their lack of insights

The annual PricewaterhouseCoopers global survey of chief executives is always good for a laugh, but this year it has managed to surpass itself as a statement of the self-evident and blindingly obvious. Thus it is that some 71 per cent of the 1,410 CEOs surveyed say their company plans to do business in at least one of the so-called Brics countries (Brazil, Russia, India and China) over the next three years. This leads you to wonder what planet the 29 per cent of CEOs who plan to do no business at all with these countries might inhabit, but I guess there still must be some sectors of the world economy immune to the influence of these emerging markets.

Still, however anodyne the findings might seem to the rest of us, they've plainly got the top brass at PwC excited. Here in Davos, Samuel DiPiazza, PwC's chief executive, observed that the Brics economies were once seen primarily as sources of low-cost production, but now both multinationals and locally based companies regard them as substantial growth opportunities. Now there's a surprise. Yet the revelations don't stop there. Overall, 77 per cent of CEOs think complexity in their companies is higher than it was three years ago, and goodness me, virtually all think this a bad thing and are trying to reduce it.

There are plenty of insights into the world around us to be had from the World Economic Forum, but the plethora of surveys and opinion polls launched annually on unsuspecting participants provide very few of them. One of the most valuable lessons business leaders can take away from this snow-covered Swiss alpine resort is the oldest of the lot: be careful not to slip on the ice.

j.warner@independent.co.uk