BUSINESS NEWS

(Updates share price in 10th paragraph.)

By Ari Levy, Brian Womack and Rochelle Garner

Jan. 15 (Bloomberg) -- Google Inc. approached other companies to seek their help drawing attention to a cyber attack from China last month and was frustrated by their reluctance to come forward, according to a person familiar with the matter.

Google announced this week that it was one of at least 20 companies targeted in a “highly sophisticated” computer attack and wanted others to talk about the incident, the person said. The companies refused, and Google made the announcement by itself, the person said.

Since then, three other companies, Adobe Systems Inc., Juniper Networks Inc. and Rackspace Hosting Inc., have said they were targeted by cyber attacks. The reluctance of companies to join Google in its initial announcement illustrates the pressure on them to protect their business in China, the world’s third- largest economy, said Barry James, who helps manage $2 billion at James Investment Research in Xenia, Ohio.

“Companies are not going to be cutting off their nose to spite their face,” James said. “It’s an underlying problem that exists in terms of dealing with a country where they don’t necessarily follow all the same rules that we do. More experienced firms have a better grip on how to navigate that.”

In disclosing the attacks, Google said it plans to stop censoring Web-search results in China, a move that may lead to the closing of its Chinese site and offices in the country. Mountain View, California-based Google said the attacks were directed at e-mail accounts of human-rights activists.

Jill Hazelbaker, a spokeswoman for Google, declined to comment on how the company handled the matter.

China Revenue

Google probably can afford to leave China, said Marshall Meyer, a professor of management at the University of Pennsylvania’s Wharton School.

“If they were making a lot of money, I don’t think they’d do this,” said Meyer, who teaches an MBA course on how companies operate in China. “You have to cultivate good relationships with the government -- no way around it.”

Less than 2 percent of Google’s $21.8 billion in revenue came from China last year, according to Jefferies & Co. By comparison, China accounted for 13 percent of Intel Corp.’s sales in 2008, the last time the company disclosed results from the country. Cisco Systems Inc. made 11 percent of its revenue from the Asia Pacific region, excluding Japan, in the most recent quarter.

Google rose $1.87 to $591.72 at 9:32 a.m. New York time on the Nasdaq Stock Market. The stock has almost doubled in the past year.

‘All About Profit’

Dan Slane, chairman of the U.S.-China Economic and Security Review Commission, a federal agency, said he was surprised more companies aren’t standing up with Google.

“It’s all about profit, and I understand where the silence is coming from, but they are missing the long-term picture,” Slane said in an interview. Chinese leaders’ “end game is to extract as much technology out of American companies as they can, transfer that to their own companies and, when they feel those companies have reached a level of technical maturity, show the American companies the door.”

Google co-founder Sergey Brin pushed the company’s executives to take a stand against the attacks and end its censorship of Web-search results in China, according to another person familiar with the matter. As part of the discussion, Google executives analyzed the financial effect of the company leaving China, the person said.

Yahoo! Inc., the second most used U.S. search engine, was also among the companies targeted by the attack in China, a person familiar with the matter said this week. Yahoo, which said it “stands aligned” with Google in condemning Chinese cyber attacks on users, said that it doesn’t generally disclose attacks on its computer systems.

Microsoft’s Stance

Technology companies such as Microsoft Corp. and Intel have spent years building businesses in China, the world’s largest Internet and mobile-phone market.

Microsoft Chief Executive Officer Steve Ballmer said yesterday in an interview with Bloomberg Television that his company intends to stay in China and wants to be “part of the solution” in the country.

Intel, the world’s biggest chipmaker, said there is no change in its view of the Chinese market and it hadn’t seen evidence of a “broad-based attack” on its systems.

“We have nothing to say concerning other companies’ views” of the Chinese market, said Chuck Mulloy, a spokesman for the Santa Clara, California-based company.

Cisco, the world’s largest maker of networking equipment, said it’s closely following discussions of censorship in China.

“As Cisco is not a service or content provider and doesn’t participate in the censorship of information by any government, we cannot comment regarding the specifics of any of our industry peers,” the San Jose, California-based company said in a statement.

--With assistance from Ian King in San Francisco. Editors: Jonathan Thaw, Jeffrey Taylor, Stephen West

(Adds BOJ’s Momma quote in the ninth paragraph.)

By Toru Fujioka and Mayumi Otsuma

Jan. 15 (Bloomberg) -- Japan’s central bank may see escalating political pressure to act against deflation as the government seeks to remove the threat of a recession relapse before a parliamentary election in July.

Finance Minister Naoto Kan, in his second week in office after replacing Hirohisa Fujii, said yesterday that “there are still various policy measures that could be taken” by the Bank of Japan. He also praised the BOJ’s Dec. 1 introduction of a 10 trillion yen ($109 billion) loan program that came days after he expected more “monetary support” from the bank. He was economy minister at the time.

“BOJ policy makers will feel more pressure to take action with Kan in the position,” said Hiromichi Shirakawa, a former central bank official who’s now chief economist at Credit Suisse Group AG in Tokyo. “Kan probably wants the central bank to give more stimulus to the economy as he’s much more political than Fujii and nervous about the government’s falling approval rating ahead of the upcoming election.”

Among the bank’s options: Expand the credit program, increase its monthly purchases of government bonds, or specify a timeframe for keeping the benchmark interest rate near zero, economists said. The spark for action may be another surge in the yen that could undermine the export-led recovery.

Sliding Popularity

The Democratic Party of Japan’s popularity has slid since it came to power for the first time four months ago promising to end 20 years of economic stagnation. Prime Minister Yukio Hatoyama’s approval rating was at 56 percent this month, compared with 75 percent when he took office, the Yomiuri newspaper said on Jan. 11, without giving a margin of error.

Kan said in his inaugural speech on Jan. 7 that he will work with the BOJ to keep the yen at an “appropriate” level, adding that he wants it to weaken “a bit more.” He said on Dec. 8 that the loan program “had considerable impact” in cheapening the currency and bolstering the stock market.

The yen traded at 90.95 per dollar at 4:05 p.m. in Tokyo, about 7 percent weaker than the 14-year high of 84.83 reached on Nov. 27. The Nikkei 225 Stock Average has rallied 21 percent since then, and rose 0.7 percent today.

“I want to make sure we communicate with each other thoroughly,” Kan said yesterday, referring to the central bank. “The government and Bank of Japan are cooperating very well.”

‘Makes Sense’

Kazuo Momma, the bank’s chief economist, said today that while it “makes sense” for the two to work together, the BOJ decides policy independently. “Governments and central banks cooperate closely in any country, not just Japan.” The country is unlikely to fall back into a recession even as the pace of growth slows, he said at a business forum in Tokyo.

Governor Masaaki Shirakawa and his colleagues may consider further action should the yen resume its advance and approach 85, said Hideo Kumano, chief economist of Dai-Ichi Life Research Institute in Tokyo, who used to work at the central bank. He said the policy board’s most likely option is to increase the size of the credit program and extend the period of the loans beyond three months.

Alternatively, Kumano added, the bank might increase its monthly purchases of government bonds from the current 1.8 trillion yen if Hatoyama decides to sell more of the securities to fund any further stimulus spending.

Japan’s fiscal condition is deteriorating: The Finance Ministry forecasts bond sales will exceed taxes as the main source of funding in the year ending March. Still, government borrowing costs remain contained as deflation attracts bond investors. The yield on the 10-year note fell 1.5 basis points to 1.32 percent, the lowest this week.

Quantitative Easing

Morgan Stanley, Goldman Sachs Group Inc. and Pacific Investment Management Co. analysts also said this month the BOJ may step up its liquidity injections through purchases of government bonds to combat consumer-price declines.

Another choice may be specifying a period for keeping the key rate at 0.1 percent, said Credit Suisse’s Shirakawa, who isn’t related to the governor. “Influencing expectations of market participants is probably the least costly step for the central bank,” he said.

The bank edged toward such a pledge last month by saying it “does not tolerate a year-on-year rate of change in the consumer-price index equal to or below zero percent.” Its understanding of price stability is inflation of up to 2 percent.

Akin to Target

The range “can almost be taken as inflation target,” Keisuke Tsumura, one of Kan’s top two economic advisers, said in an interview yesterday. “We’re now at a stage where we can evaluate the impact of the bank’s policy.”

Tsumura said Kan “will respect the bank’s autonomy,” a stance analysts including Shirakawa and Masaaki Kanno question.

“Kan isn’t seeking a traditional relationship with the BOJ,” said Kanno, chief economist at JPMorgan Chase & Co. in Tokyo, who also used to work at the central bank. “It looks like he wants to create something different to keep them under control as far as the law allows and the bank can keep face.”

The Bank of Japan is unlikely to bow to pressure if the government wants further monetary easing to help fund fiscal spending, said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo.

The central bank will only act “when it sees that there is a responsible and sustainable policy at the Ministry of Finance concerning the public debt,” Schulz said. “Kan needs to be expansionary, he needs to look responsible and he needs to get along well with the BOJ. If he does so, there is a very good chance that deflation finally will be over next year. That will be a major, major political achievement.”

(Adds economist’s comment in fourth paragraph.)

Jan. 15 (Bloomberg) -- Foreign direct investment in China more than doubled in December from a year earlier as the effects of the financial crisis fade.

Investment rose 103 percent from a year earlier to $12.1 billion, the Ministry of Commerce said at a briefing in Beijing today. That compared with a 32 percent increase in November. Investment fell 2.6 percent in all of 2009 to $90.03 billion, the government said.

Friction between the Chinese government and overseas companies such as Google Inc. and Rio Tinto Group may not be enough to temper investor enthusiasm for the world’s fastest- growing major economy. Rupert Stadler, CEO of Volkswagen AG’s Audi division, said this month that China is the best answer when seeking growth, after the nation supplanted the U.S. as the world’s No.1 auto market in 2009.

“China’s recovery means that the nation’s growth rate will lead the major economies by an even bigger margin,” said Qu Hongbin, chief China economist at HSBC Holdings Plc in Hong Kong. “Thus China’s appeal -- strong economic fundamentals and the world’s most populous consumer market.”

China’s $586 billion stimulus package, record lending last year and tax breaks on consumer spending are bolstering sales and profits. The nation may overtake Japan as the world’s second-largest economy this year, according to International Monetary Fund projections.

Industry Secrets

Google, the owner of the most-used Internet search engine, said on Jan. 12 that it will end self-censorship in China after attacks on e-mail accounts of human-rights activists and may exit the nation. Separately, Chinese prosecutors are deciding whether employees of Rio Tinto, the world’s third-largest mining company, will go to trial for allegedly stealing secrets related to the steel industry.

“Most foreign investors are still more than eager to secure a share of China’s market, especially amid the financial crisis because that’s where the potential market lies and where the profits are,” said HSBC’s Qu.

VW, which sold 6.29 million cars and sport-utility vehicles worldwide last year, reported a 37 percent surge in China to 1.4 million autos, helping offset declining European deliveries. The German automaker plans to invest more than 4 billion euros ($5.8 billion) in the country by 2011, while Ford Motor Co. is spending $490 million building its third plant in the nation.

Foreign direct investment adds to the flood of cash in the financial system from record lending and the trade surplus, increasing the risk of bubbles forming in asset markets and inflation surging back. Property prices rose at the fastest pace in 18 months in December, a report yesterday showed.

Fan Gang, an academic member of the central bank’s monetary policy committee, said on Dec. 28 that “hot money,” or short- term speculative capital, is making China’s stock and property markets more volatile. Zhang Xiaoqiang, deputy head of the National Development and Reform Commission, said on Jan. 5 that the nation may see “huge” inflows of hot money as foreign investors step up bets on gains of the Chinese currency.