Google’s China Crisis Deepens With Gmail Hacking Incident

Google’s standoff with China over censorship in search in 2010 was a lowpoint in the search engine’s ambitions to expand to the East, but a new scuffle over email hacking could do that +1.

Yesterday, Google said in a blog post that hackers in China have gained access to hundreds of email addresses for U.S. and South Korean government officials as well as military personnel, Chinese political activists and journalists. Google said it had detected the event, likely perpetrated through a phishing scam, using its cloud-based security services, and that it they appeared to originate from Jinan, China, although it has not identified who might be responsible. It says that it has now disrupted the activity.

Perhaps all too aware of the disaster that has hit Sony (NYSE: SNE) with its PlayStation and Qriocity hacking problems — which only now seem to be clearing up enough now for Sony to relaunch its PlayStation Store in selected markets — Eric Grosse, Google’s engineering director who penned the post, emphasized that Google’s own internal systems had not been affected by the hack.

But even if the phishing attack has been neutralized, it doesn’t look like the China issue will be going away soon for Google (NSDQ: GOOG).

Today, the Chinese government denied Google’s accusations and called the claims “completely unfounded“, claiming that it too had been the subject of hacking, which it is investigating.

China is an undeniably ripe opportunity for Google not just in terms of online growth but also in other significant areas like mobile.

Android is a fast-growing platform in the country, with several Chinese handset makers now developing low-cost smartphones using the Google OS.

It’s an area that others are vying for, too, of course: Apple (NSDQ: AAPL) is reportedly looking at developing an iPhone that works on the country’s homegrown mobile data standards, fuelled by news that Chinese consumers are iPhone-crazy. Microsoft (NSDQ: MSFT) has finally created a Chinese-friendly edition of Windows Phone, which is getting developed by ZTE and many others for the Chinese market. Meanwhile, Nokia (NYSE: NOK), which has had a commanding lead in mobile in China, has now cautioned investors that those results will not be as stellar in the year ahead.

Google’s search activities have already been limited as a result of its compromise with China to continue operating there: in return for no censorship from China, Google can only show music, products and translation, but not web pages. Incidents like this one with Gmail show that the two are not on an even keel, however, and that could be a bad sign for how it will grow in the country in the future.