Google justified going into Chinese market by saying they would back track on that decision if their presence was doing more bad then good, aka if they became and agent of the repression instead of an agent of change. Today Google announced they are going to the Chinese Government with an ultimatum of sorts, Google.cn will be uncensored or Google.cn won’t exist.
China doesn’t need Google in a real sense, they are more then adequately blessed with technical talent, know how and search engines of their own. Google pulling out would however put pressure on other western based providers to do the same, if this cascade effect were to take place some serious pressure might come to play. Google being the big dog has the ability to cause such cascades.
Power regimes being what they are tend to be susceptible to perceived slights and therefore love to engage face saving. The Chinese may very well opt to agree to Google request with glowing support and hearty handshakes, or they might punch Google/The West directly in the face. Both responses designed to save face.
All of this has been brought about by a recent Cyber attack on Google that originated from China. Follow ups have shown to Googles powers that be that someone was trying to get into the Gmail Accounts of Chinese Human Rights Activist. On top of that a number of other activist accounts from around the world have been routinely accessed by third parties. These are people who would generally be considered dissidents in their own countries. It stands to reason the only party interested in infiltrating their email accounts would be the Governments that they are fighting.
The legitimate concern of third parties reading your gmail/hotmail/yahoo mail brings up a question. What can be done to help people know when their account has been compromised?
Google/Hotmail/Yahoo would do well to implement a last login banner in their email service to protect against this. The IP geo tagged and timestamped indicating the last ip to login to your account would go very far in notifying concerned individuals that someone maybe reading their email, and for some people that can mean the difference between life death, or false imprisonment.
Read Googles announcement for yourself.