The face-off between two great world powers--Google and the People's Republic of China--is a landmark event of the 21st century. It certainly deserves some comment.
The background: Google, like most Western companies, has bent over backwards to get access to the huge Chinese market. One of the many ways China's market has been growing rapidly has been in its people's use of the Internet. Against their principles, Google agreed to allow Chinese authorities to censor Web searches on their Google.cn site. Not for pornography (as far as I know), but for political content: search objects like Tienanmen Square, or the Dalai Lama, don't return the same rich information that they would on a normal Google search.
About two weeks ago, Google reported to US authorities, and then publicly, that they had been subjected to hacker attacks that were traced back to China (via Taiwan servers). Google has replied to that threat by saying they are thinking of closing down their China-specific site, Google.cn, and in the meantime they will no longer allow the censorship. China has denied any involvement in the hacker attacks and is basically saying "talk to the hand".
US Secretary of State Hillary Clinton has gotten involved. Without naming China's government specifically, she has said that those who make cyberattacks on American entities should expect that there will be "consequences".
It would appear that the consequences, for now, will be limited to the Google/Secretary of State's campaign of denunciation. The evidence would appear too fuzzy to justify economic sanctions. Any kind of cyber counter-attack, either on Google's part or from the US military, would be neither announced nor, likely, effective as a deterrent of future cyberwarfare--more likely, it could lead to mutually destructive escalation of the contretemps.
Google's action to remove the censorship on their website, though, is an effective countermeasure. The Chinese are total control freaks, and that will get them where it hurts, to the degree that they tolerate it. And they may not: The leading web search site in China, baidu.com, is a government-owned company; Google is a distant second. So, they may dare Google to do their worst, feeling confident that their Internet users will abide.
The threat to close down Google's website is not just an idle one, though; apparently it doesn't make money, it represents a huge policy exception for the company, and it is something that will bring loss of face to the Chinese government. All the Chinese officials can do is keep a lid on the story, which they have tried to do. I have to feel the Chinese grapevine will be full of it, among those in the know and with a mind to listen to such seditious notions.
My guess is that China has several squads of patriotic hackers working without official authorization (but plenty of unofficial encouragement and access to resources). Each group would know that they must cover their tracks, and of course if they are found out "the ministry will deny all knowledge". There would probably be a friendly rivalry among the groups to see which can achieve the biggest splash, so I imagine the Google caper was quite a coup.
It is no doubt a wake-up call for both the US and Google to develop better methods of counter-attack, as I suspect a purely defensive approach can not succeed for long against determined attack. Drawing upon the cyberpunk fiction of William Gibson, which this incident resembles more than a little, perhaps they can develop some sort of "black ice" (Gibson's term--don't know if original) that would ensnare an attacker in a web of confusion and give it away to the omnipresent NSA spies monitoring everything traveling through the world's linked servers.
The New York Times has been all over the story since it broke two weeks ago, including a stimulating blog forum on the topic, and an update yesterday, well-informed from Foggy Bottom and from intelligence sources.