Let me count the reasons why I love Google: its speedy search engine, the oodles of free storage on Gmail, Google Maps that get me where I need to go, YouTube for video sharing and time-wasting and Google Analytics, to obsess over my blog readership.

But seriously folks—Google’s decision this week to withdraw from China, rather than accept censorship, is a breathtaking example of corporate values at work, and a landmark moment in the history of corporate responsibility. It’s the biggest and boldest statement any American company has ever made about doing business in China.

As Rebecca MacKinnon, an Open Society fellow and expert on both China and Internet freedom put it:

They are sending a very public message – which people in China are hearing – that the Chinese government’s approach to Internet regulation is unacceptable and poisonous. They are living up to their “don’t be evil” motto – much mocked of late – and living up to their commitments to free speech and privacy as a member of the Global Network Initiative.

Because Google is one of the world’s best-known and most-admired brands, its action will also create pressure on Microsoft, GE, Wal-Mart and others to deal in a more ethical way with a country whose economic potential is so great that businesses typically turn away when China imprisons political activists, restricts religious freedom and strictly controls what its 1.3 billion people can read and see.

Remember that in China, censorship is literally a matter of life and death. This government won’t tell its people about the safety of their air and drinking water, the pollution in their rivers, workplace accidents, tainted foodstuffs or children who die in schools because building codes aren’t enforced. Imagine living in a place like that.

Google’s top managers have struggled since 2005 about whether to enter China, and how. How could the company operate in a country with the world’s most pervasive Internet censorship apparatus while remaining to its mission to “organize the world’s information and make it universally accessible and useful?” China did more than block access to content online; it used the Internet to monitor, track down and punish dissidents. In 2005, a journalist Shi Tao was sentenced to 10 years in prison, based in part on information provided by Yahoo! (In 2006, I  wrote  Yahoo’s China problem for fortune.com.) At about the same time, Microsoft at the government’s request abruptly shut down a blog on MSN by writer and activist Michael Anti. So these aren’t new issues.

Until now, Google reasoned that it was doing more good than harm in China. Its search results provide a marginally more diverse menu of ideas than those of Baidu, its big Chinese competitor, which has close ties to the government. To its credit, Google at least informs people who use its Chinese language search enginer, www.google.cn, that they were getting incomplete results.

But what Google’s announcement described as a “highly sophisticated and targeted attack on our corporate infrastructure originating from China” was evidently too much for the company to bear.

Make no mistake: Google’s decision to reject censorship in China, which in all likelihood will mean that it will no longer be able to do business there, is going to cost the company a lot of money in the short run. Internet research firm EMarketer estimates the size of the search-related advertising market at about $1 billion, according to this analysis in PC World. Google has about a 30% share of the search business, which would give it $300 million in revenues. The potential, as China’s economy grows, is much greater, of course.

Conventional wisdom is that no company can walk away from that kind of money. Here’s a venture capitalist, in a revealing quote from The Times:

“I don’t think anybody is going to run away from China,” said Joe Schoendorf, a partner at Accel Partners, a Silicon Valley venture capital firm with a major presence in China. “Google has Microsoft on the ropes, and China is arguably the world’s most important market outside of the U.S. You don’t walk away from that on principle.”

Of course, that’s exactly what Google is doing.

Similarly, The Journal today quotes Hal Sirkin, a senior partner at the Boston Consulting Group, saying:

China is such a huge growth opportunity that few U.S. companies will want to shut that door completely when there’s money to be made.

But you know what? I think Google’s get-tough stance with China will be good for its business.

Here’s my thinking. While others may scoff, Google takes its “don’t be evil” motto seriously. Part of its identity is being a good company. The company is consistently at or near the top of FORTUNE’s Best Places to Work list. Google takes global warming more seriously than most companies; it has invested in solar, wind and geothermal energy companies as part of its efforts to bring down the costs of renewable energy. Just a few weeks ago, I wrote about how Google Earth helps indigenous people and environmental groups preserve forests. Sergey Brin, who grew up in Russia, knows first-hand what it means to live in a dictatorship, and has always been uneasy about Google’s China operations.

So by taking China, Google is reinforcing its identity as a different kind of company. It will attract and engage better employees. It has already enhanced its image and brand. All this is good for business. And in the long run–maybe the long, long run–Google may find itself able to do business in China on its terms because freedom eventually will trump repression.

In the meantime, some Chinese are laying wreaths outside of Google’s headquarters in Beijing.

Barely a week goes by without new evidence of the greening of China. This is great news for the planet—but some people say it’s bad for the U.S.

Are they right to worry?

What got me thinking about this was a phone conversation the other day with Bill Gross, the brilliant and tireless entrepreneur who is the chief executive of eSolar and a founder of electric-car startup Aptera.

Bill was calling with great news for eSolar, a Pasadena, Ca-based firm that makes software and equipment for utility-scale solar thermal power plants. This weekend in Beijing, eSolar announced a deal with a Chinese electrical-power manufacturer to build at least 2 gigawatts (2,000 megawatts) of solar thermal power plants over the next 10 years, beginning with a 92-megawatt plant that will break ground this year.

ESolar power plant

“China is really moving fast to implement as many green technologies as they can, to become experts at them and to scale them up,” Bill told me. “It’s a statement that China is thinking about clean energy for the long term.”

I’m hearing this more and more. Tulsi Tanti, who runs a big Indian wind power company called Suzlon, told me last month in Copenhagen that China is his biggest market. My blogging colleague Jesse Jenkins (at The Energy Collective) has written about a report from the Breakthrough Institute, where he works, called Rising Tigers, Sleeping Giant (available here as a PDF) that argues, among other things, that:

Asia’s rising “clean technology tigers” – China, Japan, and South Korea – have already passed the United States in the production of virtually all clean energy technologies, and over the next five years, the government’s of these nations will out-invest the United States three-to-one in these sectors.

It also says:

If the United States hopes to compete for new clean energy industries it must close the widening gap between government investments in the United States and Asia’s clean tech tigers and provide more robust support for U.S. clean tech research and innovation, manufacturing, and domestic market demand.

The New Yorker just published a long story about clean tech China called Green Giant. And this morning in The Times, Tom Friedman tackles the issue again, saying:

I’ve been stunned to learn about the sheer volume of wind, solar, mass transit, nuclear and more efficient coal-burning projects that have sprouted in China in just the last year.

We are either going to put in place a price on carbon and the right regulatory incentives to ensure that America is China’s main competitor/partner in the E.T. revolution, or we are going to gradually cede this industry to Beijing and the good jobs and energy security that would go with it.

Note Friedman’s use of “competitor/partner.” That’s the question, isn’t it: Is China a competitor or partner or both?

Obviously, that depends on precisely what China is doing; no single China investment in clean tech can be called typical. But let’s look at the question through the prism of this weekend’s eSolar deal. Interestingly, eSolar already manufactures in China—it buys its motors and gear boxes from a contract manufacturer in Shenzhen. The company is also supplying its solar thermal technology to India through a key partner, the Acme Group. So, like most any big company, eSolar has a global supply chain and a global customer base. Other clean tech startups like First Solar, which makes solar PV panels, and Coda Automotive, an electric car company, also manufacture in China. (For details, see Todd Woody’s story about First Solar and my blogpost about Coda.)

According to Bill Gross, eSolar’s most valuable asset is the software which enables its equipment—fields of mirrors known as heliostats—to efficiently focus the sun’s rays on water, creating an intense heat that vaporizes the water and creates steam to drive a conventional electricity-generating turbine. The company has been operating a plant in Lancaster, Ca., which impressed delegations of Chinese officials who came to visit last fall.

“They had been looking all over the world at every solar thermal technology, to find one they can bring into China,” Bill said. “We’ve been producing electricity for six months, so we have very reliable day by day data.”

Interestingly, China’s Penglai Electric made the deal with eSolar is less time than it is taking the U.S. Department of Energy to decide whether to provide loan guarantees for a similar plant that eSolar wants to build in New Mexico with NRG Energy, a firm power generation firm. One of the advantages that the Chinese have over the U.S. is that they can move fast.

Another is that the Chinese government can will things to happen. (“Not in my backyard” is not a cry often heard when the backyards are in Beijing or Shanghai.) Yet another advantage is China’s massive government subsidies, which some clean energy boosters in the U.S. use to argue that our government is not doing enough. See the following from Rhone Resch, president of the Solar Energy Industries Association, as quoted in The Times:

“In China, 80 percent of the entire cost of a factory and worker training is paid for by the government,” Mr. Resch said. “Malaysia will give you a 10- or 20-year tax holiday.”

He praised Mr. Obama’s $2.3 billion tax credit program, but said its 30 percent credits were not nearly as generous as China’s.

Think about that for a moment, though. If eSolar and First Solar and Coda Automotive do business in China, and get a piece of those subsidies, how is that bad for the United States? Doesn’t it mean that the Chinese government is subsidizing U.S. companies and U.S. jobs?

In the case of eSolar, the China deal will enable the company to become profitable almost immediately, Bill told me. In fact, there’s a chance that if the company does more deals, it won’t need a loan guarantee from the U.S. government to go forward in New Mexico. That’s good for American taxpayers.

At the risk of sounding unpatriotic, I have to say that I wonder about the whole “global competitiveness” argument around clean technology. For one thing, without massive government subsidies, the U.S. is unlikely to become a center of “green manufacturing” for products that can be shipped easily from place to place. (Huge and heavy products like wind turbines are another matter.) What’s more, is it really such a bad thing if China or India are able to generate “green jobs” faster than we are. There’s no question that they need the jobs more–per capita income in China is about $3,000, and in India it’s about $1,000.

I asked Bill Gross by email: “Should Americans be worried about the rise of clean tech in China?  Do you view China as a partner to the U.S. or a competitor or both?” He replied:

I think China doing this is a great thing for us.  First of all, as a California-based company, this creates jobs in the United States.  Second, this is one earth, so a project anywhere that is renewable is a great project.  But finally, we need bold leadership across the planet to take renewable energy seriously, and if China does that, and we all emulate that, that’s not just a good thing, that’s a great thing.

Maybe we need the trumped-up equivalent of a “space race” with China to motivate Congress to get moving and put a price on carbon. But we shouldn’t. As Bill says, this is one earth.

Half an hour before an interview that I’ve flown 8,000 miles to do, the driver of the Toyota SUV that’s taking me there pulls to the side of a dusty and crowded highway. He’s yelling in Cantonese into his cell phone and madly sketching Chinese characters onto the touch screen of his GPS navigator. The PR woman seated beside me is lost, too. “The GPS isn’t working,” she says. “Too many new roads.”

I can’t blame the driver, the PR woman or the GPS—which, it occurs to me, was probably made nearby, since we are in Shenzhen, the Chinese mega-city that is the hub of the global electronics manufacturing industry. They simply can’t keep up with China’s growth.

You can’t appreciate the scale of a place like Shenzhen until you’ve seen it for yourself. Think of high rises, really high rises, stretching into the distance for as far as the eye can see. Factory after factory, in all directions. Cranes everywhere. Roads too new to have signs. Of course the old roads don’t have signs either.

On the factory gates are the names of companies you’ve probably never heard of: TianMa, NeoPhotonics, TCL, Skyworth, Fangda, Dawning, Tencent, Shima, Microtec, Ohimo Eyewear, Glory Medical, NCBC, Sisemi, Trony. They make things for the companies you know: Apple, Dell, Sony, Hewlett Packard and Nokia.

Shenzhen is a city of about 14 million people, bigger than New York or London, that most of us couldn’t place on a map. The most amazing thing about Shenzjen isn’t its size, though. What’s amazing is how quickly Shenzhen has grown up. Back in 1980, when the city (which is just north of Hong Kong, by the way) was designated as a special economic zone by Deng Xiaoping it was a fishing town of about 30,000 people and the tallest building was a three-story guest house, according to the South China Morning Post, which, by coincidence, published a weeklong series about Shenzhen during my visit.

Shenzhen is the creation of an economic miracle. The government invited in capitalists, cleared land for factories, brought in masses of rural migrants and housed them in vast dormitories. Their jobs pay $200 a month or less but they are so desirable that the authorities built a wire fence, 85 kilometers long, to keep out illegal immigrants. From the factories sprung other opportunities. Today, there are enough middle managers, engineers, shopkeepers, developers and entrepreneurs so that the average per capita income in Shenzhen has grown $10,628 a year, the highest of any city in China. The city has its own vast shopping malls, theme parks, luxury hotels and a stock exchange.

“Pursuit of money has pushed aside Maoist principles,” said one headline in the newspaper series. You don’t say! Still, there was a wistful tone to some of the coverage. An early settler named Fang Xioa, who worked as a salesclerk at a state-owned department store and then got rich trading IPOs, said that her husband, who also made money in the market, then left her for a young mistress:

We have been overwhelmed by numerous unexpected freedoms and opportunities since the economic reform launched. But many have also lost their inner peace and traditional values amid dazzling fortunes.

Right now, there are more pressing concerns than the loss of inner peace in Shenzhen and the rest of Pearl River Delta. No. 1 is the global recession. China’s growth is slowing, and several people told me during my brief visit that they are worried about the stresses that a downturn will place on the ruling Communist Party, as workers lost their jobs and become disgruntled.

Over lunch one day at the Hong Kong Jockey Club, one of the city’s most prominent PR women drew the Chinese characters for the word harmony on a scrap of paper. Turns out that one of the characters represents “grain” and the other represents “mouth.” So long as people are fed, she explained, there will be harmony in China. But already hundreds of thousands of people in the Pearl River Delta have lost their jobs because global demand for electronics, cars and toys is declining. Taxi drivers and bus drivers have gone on strike, and thousands of people in one city (elsewhere in China) attacked government offices and burned cars to protest the confiscation of their land.

The Chinese government is responding with a carrot, a stick and, most interestingly, some small steps towards openness.

The national and provincial governments are rolling out economic stimulus packages. The government is holding down fuel prices, helping the newly-employed collect back pay and putting off wage increases to keep more people on the job. That’s the carrot.

The government is also demanding law and order. “We have to strengthen public security forces in rural areas, carry out crackdowns on crimes in high-risk places and punish those who endanger our social stability,” said a top party official. That’s the stick.

As for the openness, the state-owned media is reporting more on land, labor and social problems because acknowledging bad news is a way to contain it, according to Reuters:

Propaganda authorities have issued a writ authorizing news organizations to report on unrest, rather than allow rumours to take hold among a public worried about the impact of the global financial crisis on the country’s economy.

This partly reflects the difficulty of suppressing negative news as rumors spread quickly across the Internet. China’s digital media businesses are flourishing.

I asked a young marketing executive for a Chinese company whether the country needed to become more open, to deal with corruption, debate the government’s economic policy or, for that matter, learn from experiences in the private sector. He responded that he thought it would be difficult to take China’s companies to the next level so long as the society that stifles argument and dissent. Marketing, he added, is one area where China’s companies lag well behind because the state-run education system discourages creativity or thinking outside the box.

Big companies, he noted, have been built in China but the economy has yet to create a global brand. I thought about that for a moment, recalled all those unfamiliar names on the factory gates, and realized he was right. (No, Lenovo is not a global brand.)

By the way, after 40 minutes of driving around and a couple of fruitless attempts to ask people for directions—apparently no one can keep up–I made it to the interview. Given the slowdown, maybe the government should hire some people to put up street signs.

P.S. I had an email after this posted letting me know that Ritz Carlton is opening a hotel in Shenzhen next year.

Since returning from the Beijing Olympics last month, Hank Paulson has been a nonstop crisis manager. (I don’t think he’s had a day off.) But when we spoke back in August, and again a couple of weeks ago, we spent some time talking about a couple of his long-term passions: China and climate change.

Paulson’s take on China and climate are the topic of today’s Sustainability column. These issues will matter when Wall Street settles down—as it will one day, although probably not anytime soon. Here’s how the column begins:

Treasury Secretary Hank Paulson has careened from crisis to crisis lately, backing the Bear Stearns rescue, engineering the government takeover of Fannie Mae, refusing to commit taxpayer money to save Lehman Brothers, and Friday announcing a massive program to help banks offload mortgage-related assets.

When he hasn’t been fighting fires, Paulson, the former chief executive of Goldman Sachs (GS, Fortune 500), and his team at Treasury have been working on two big, long-term issues that matter to him, and should matter to all Americans – U.S. relations with China and climate change.

They are intertwined, of course. Without the support of huge, rapidly-developing nations like China (and India), there’s no way that Europe, Japan and the U.S. can drive a global consensus to curb global warming.

You can read the rest here.

It will be a fascinating week in Washington, by the way. President Bush, Paulson, Ben Bernanke desperately want to get their big Wall Street rescue package approved but because the Democrats who control Congress know that, they will try to load up the legislation with their own proposals, some related, some not—including relief for individual homeowners (probably not a good idea), curbs on executive pay (a good idea, but can it be imposed effectively from Washington?), maybe the production tax credit for renewable energy (crazy that this didn’t pass long ago) and who knows what else. The Republicans in the House, many of whom are already disgruntled with Paulson and Bush and their activism, will be very unhappy but likely irrelevant. As I said, it will be a fascinating – and historic – week.