Jan. 13 – Google announced an ultimatum Tuesday saying it would no longer comply with censorship restrictions on its Chinese website and is considering pulling out of the market after a spate of major cyber attacks found to be originating from inside the country.

According to a blog entry titled “A New Approach to China” posted by Google’s corporate development and chief legal officer David Drummond: “As part of our investigation we have discovered that at least twenty other large companies from a wide range of businesses–including the Internet, finance, technology, media and chemical sectors–have been similarly targeted. We are currently in the process of notifying those companies, and we are also working with the relevant U.S. authorities.”

He writes: “We have evidence to suggest that a primary goal of the attackers was accessing the Gmail accounts of Chinese human rights activists. Based on our investigation to date we believe their attack did not achieve that objective. Only two Gmail accounts appear to have been accessed, and that activity was limited to account information (such as the date the account was created) and subject line, rather than the content of emails themselves.”

The company will hold further negotiations with Chinese authorities in the next weeks on how it could operate an unfiltered search engine in the country. Drummond wrote: ” We recognize that this may well mean having to shut down Google.cn, and potentially our offices in China.”

Google entered the Chinese market in 2006 agreeing to censor its search engine results accordingly even after criticism from human-rights groups and web-industry officials. The company believed then that the benefits of increased access to information for people in China and a more open internet outweighed the censorship. Since then its presence in China has been strained from authorities reprimanding the search engine company for having pornography on its sites to blocking its video-sharing site, YouTube.

The Chinese market holds a global strategic importance for Google because of its massive size and pent up potential. China currently has the biggest online population in the world at 338 million web users; more than the population of the United States. In reality though business from the mainland is not a major revenue earner for the company. Local Chinese company Baidu still leads the search engine business in China with 61 percent market share. If Google pulls out of the Chinese market it will be the first time in recent years that such a high-profile foreign company stands up against China’s restrictions on freedom of speech.

In another twist to the story, China Daily is now running a news story saying that the Chinese search engine Baidu has also suffered cyber attacks and promoting the article in its email and Eclip circulation. The attacks have been blamed on an Iranian group, however the Iranian government has denied any knowledge of a group identified by China as the “Iranian Cyber Army.”