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China Accuses Google of Breaking Promises; Thousands Strike in France; Britain Launches Space Agency

Aired March 23, 2010 - 15:00:00   ET


RICHARD QUEST, HOST, QUEST MEANS BUSINESS: It's a tangled web that China accuses Google of breaking its promises.

Thousands strike in France against unpopular reforms.

And shooting for the stars, Britain has launched its own space agency.

I'm Richard Quest and, yes, I mean business.

Good evening.

China has reacted angrily after Google said it would not longer act as Beijing's censor, and then backed up its actions by pulling out of the country. The Chinese authorities say it is a matter of respecting the law of the land. Outside the country advocates of web freedom are cheering Google's action.

Tonight, on QUEST MEANS BUSINESS, has Google just put itself at a competitive disadvantage? And this is why. For a split second-split second-Internet users from Shanghai to Guanjo (ph) got a glimpse over the great firewall of China. And then that wall quickly went up again, obscuring the view.

Come and join me at my wall, over here. This, of course, is what we are talking about. had been returning censored search results to anyone in Mainland China, since it was launched four years ago. The censoring on this occasion was done by Google itself. It was to the disgust of the company's critics who said that Google had sold out to get into the country.

Since yesterday, last night, when you and I were on air together, users logging on from China are being directed to Down here in Hong Kong, the site has no legal obligation to exercise self censorship. Google itself will not restrict what users find.

The Chinese authorities can and, yes, less than a day after the change over, they are restricting it. Searches which include terms such as Tiananmen Square massacre, and the Dalai Lama are being blocked by the Chinese government. So that is a significant-just look from their down to there, Chinese state media called the Google move to shift to Hong Kong, "Totally wrong" and a "violation of Google's promise to abide by Chinese law." When the questions of relations, however, with the United States, Beijing is denying a political angle to the disagreement.


QIN GANG, SPOKESMAN, CHINESE FOREIGN MINISTRY (through translator): The Google incident is just an individual action taken by one company. I can't see it having any impact on Sino-U.S. relations, unless someone wants to politicize it. Then I cannot see it having an impact on China's international image, unless someone wants to make an issue of it. It is not the image of China that has been undermined rather it is that of Google.


QUEST: Now, the White House says it is disappointed the two sides have failed to reach an agreement. Google's move, though, may clear its conscience on censorship. However, it will affect its ability to operate in the world's largest and nascent Internet market that is growing rapidly. Our correspondent in Beijing is John Vause, and he considers what Google stands to loose.


JOHN VAUSE, CNN INT'L. CORRESPONDENT (voice over): This is what Google is giving up, the world's biggest and fastest growing Internet market. They call them "net-izens" in China and here there is almost 400,000 million of them. And at this Internet cafe most seemed unfazed that Google was closing down it's mainland search engines.

"I don't think there is reason to worry," this woman says.

"It's like fate," this man says, "I just care about making my own life better."

Publicly, the government here seems almost blase by Google's announcement in January that it would probably leave. But in recent days, editorials in state-controlled media have gone on the offensive.

"The China Daily" says, "Goggle has challenged the government's right to control harmful content like pornography. And the magnitude of this absurdity is beyond comprehension."

China Radio claims Google has deep connections to the Obama administration and search results are biased. Adding it's ridiculous and arrogant for an American company to attempt to change China's law.

Other say it is a commercial decision. Google is a distant second to local search engine, Baidu, with about 30 percent market share and profits of around U.S. $300 million, last year.

DAN BRODY, FMR. EXECUTIVE, GOOGLE CHINA: Of course, globally, that is not a major number. But I don't think Google is-I don't think the decision makers calculus would have changed very much if the number was much, much higher or much, much lower.

VAUSE: Google says the tipping point was cyber attacks originating from China, targeting Gmail accounts of human rights activists. And so the company said it would end self censorship, stop blocking information on sensitive subject like Tiananmen Square, a direct violation of Chinese law, and after weeks of negotiations, not to be tolerated by Beijing.

So, as a compromise, the company is redirecting all mainland traffic to its servers in Hong Kong, where it is not required to self censor, but because of the so-called Great Firewall, Beijing can still filter what users can and cannot access.

(On camera): that means Google, with its "don't be evil" company motto, will no longer live with the uncomfortable truth that it was censoring the Internet here in China. John Vause, CNN, Beijing.


QUEST: On the commercial front, cracks are already appearing in some of Google's most lucrative Chinese partnerships. "The New York Times" says that the country's biggest mobile phone operator, China Mobile, is expected to cancel a deal that uses Google's search engine. It says China Unicom, the next biggest player, is delaying or canceling the launch of a new phone that would use Google's android software. And Tom Online, the Chinese Internet firm controlled by Hong Kong tycoon, Lee Taoshing (ph) says it was stopping using Google search services after a deal expired. It reiterated its commitment to comply with China's Internet regulations. As you can tell when the message goes out, it goes out fast and furiously.

Ted Fishman has written widely on China's economic influence and the effect of change. I asked him, the wider issues, besides just Google's battle with censorship, what's it all about?


TED FISHMAN, AUTHOR, CHINA EXPERT: The issues are enormous, Richard. The issue is really how deeply will China be allowed to insinuate itself into the corporate practices of global companies working worldwide, but with a presence in China? Will China be able to make the rules for them inside and outside of China?

QUEST: You see, from what I've read-from what you've written-you believe that there was a fear that eventually China would put pressure to censor Google material, even outside China. Now that's a pretty large leap, sir.

FISHMAN: How large is it really when there is already pressure on the United States president not to meet, for example, with the Dalai Lama? There is pressure all over the place from China, to get people to act in the way China wants.

Look at the Rio Tinto case, the case with Australian mining company. The defendants in that case are all ethnic Chinese, some of them foreign citizens, but ethnic Chinese. When the Chinese enforced laws against multinational companies often they identify ethnic Chinese from abroad. And I think this is to send a message that if you are ethnic Chinese and you are acting as an intermediary for a global company you must put the interests of your homeland first and the homeland you are allowed to have is China, whether you are an Australian citizen or not.

QUEST: Right. It leaves companies in an extremely difficult position. Unless we accept, or perhaps potentially, Google got the upper hand, because it is still offering service to China, does it really matter where the servers are based? It is doing it through Hong Kong.

FISHMAN: Well, it does matter where the servers are based. Of course, you know, China will have much more control on domestic servers. But if companies that do a large part of their business in China, and some global companies are hoping to recreate all of their global success inside China; they can be as big in China as they are in the rest of the world. If that happens the Chinese government will have enormous amount of influence on how they do business everywhere.

QUEST: So in-

FISHMAN: This is the way Chinese companies work, too. Inside China they are very, very cozy with the government.

QUEST: Right. So imagine then that you are advising me, Quest, Incorporated, and I'm planning to go into China, or I am already there. I know the pitfalls that lie ahead of me, but I have to somehow navigate these landmines, don't I?

FISHMAN: Well, I think you'd be a huge hit in China, because you are an irresistible personality. And that is what China wants. It wants things that will create prosperity in China. So, when you go to China with the Quest business plan, you have to offer China something China doesn't have. But when China replicates Richard Quest, and has the equivalent of Richard Quest, Inc. it is going to be harder for you to do business there.


QUEST: The question of Google. We'll follow it more in late, in the program. It is not just in China that Google is defending its way of doing business. Why a French fashion house took Google to court. We'll talk about that battle and why sides are claiming victory. And really, who did win.

Now, the markets that are open and doing business, in New York, rather-excuse me. The Dow Jones up nearly 0.75 of a percent, up at 10,855. We have broken through 10,800. And the markets are currently at about an 18-month high at the moment. Which is an encouraging aspect.

To Europe, and the European bourses, they European-all the major markets there, closed higher. In London the FTSE ended at its highest score since 2008. Financials were among the top gainers. British insurer Legal & General were up 5 percent, after its earnings beat the market estimates. Cairn Energy gained 8 percent. It's new oil exploration program went down well. Volkswagen lost 6 in Frankfurt. It has just announced around $6 billion of new stock for its takeover of Porsche.

Those are the markets, you are up to date, now Fionnuala with the news headlines.


QUEST: When I return in just a moment, with QUEST MEANS BUSINESS, Britain's finance minister is about to reveal the budget. That's tomorrow, and the battered briefcase will have more inside it than just his speech. It could hold the key to who wins the next election, in a moment.


QUEST: While Britain's finance minister is, tonight, putting the final touches to his pre-election budget, on Wednesday Alistair Darling will reveal what is in that battered red box, the traditional budget briefcase. It contains the all important accounts for Britain. And tomorrow we'll know how big the gap between government income and expenditure is. How much it must borrow, and we believe that will be less than originally forecast.

We will also find out, of course, whether there are going to be any tax rises, budget cutbacks and indeed, how perhaps he will cut the deficit in the future. This budget could have a real impact on how people vote in the general election, which is expected to be announced in the next two weeks, and voting probably-probably on May 6.

As Jim Boulden now explains, voters will look closely at how the government will deal with the black holes in the books.


JIM BOULDEN, CNN INT'L. CORRESPONDENT: The U.K. finance minister has held up a red box in front of No. 11 Downing Street for more than a century. Alistair Darling will do it again on Wednesday. His predecessor, the current Prime Minister Gordon Brown, did it for a decade. Inside is the government's budget plan and economic assumptions for the next fiscal year, starting in April.

Last time Darling predicted the U.K. economy would shrink by around 3.5 percent for the year, through this month. It's been much worse. Though the economy did eke modest growth in the last quarter of '09, and unemployment had not been as bad as predicted. So the markets will be listening carefully to Darling's economic prediction for the coming few years.

UNIDENTIFIED FEMALE: I think the long-term forecast is far too optimistic. He's expecting growth to be much higher than we're expecting.

BOULDEN: Stronger growth would mean higher tax revenues, and therefore, painful cuts that are coming could be tempered, and could affect how much more the government will have to borrow through bond markets.

But it is where these cuts will come that has most people in Britain on edge. Defense cuts have been signaled already, but analysts want to hear much more about what else will be slashed.

UNIDENTIFIED FEMALE: We really need to see about 15-billion worth of fiscal tightening to be implemented, if the government thinks it hit its target for half the deficit within four years.

BOULDEN: There will be a national election in the coming months, probably May. Some wonder if Wednesday's budget will be populist and expensive to get votes, especially with polls indicating the lead of the opposition Conservatives is dwindling. Though business leaders fear there could be no overall majority.

The election couldn't have come at a worse time. The ongoing instability that it creates, the uncertainty for business owners in that they can't plan growth, is really, really bad news. And the worst part of all of this, of course, will be a hung parliament.

BOULDEN: Other governments will be watching closely to see if Britain can slash its budget deficit, even with threats of even more strikes by the public sector. Taxpayers will be watching to see what will cost more. Investors and tourists will watch to see how stock bonds and the weak pound react. Jim Boulden, CNN, London.


QUEST: Now to put all of this into perspective and get some, perhaps, insight into what we are going to hear, and the significance, I turned to Stephen King, the chief economist at HSBC. This significant budget, will it tell us whether Britain is in better shape than we first thought?


STEPHEN KING, ECONOMIST: The budget will be better than people expected a few months back and that is largely because tax revenues are going to be a bit stronger, that also is because we have seen a very strong rebound coming through in asset prices, equity prices in particular. But the real tough task lies ahead, really. We're going to have very significant spending cuts over the course of the next three or four years. But those really haven't started to bite yet. So in terms of brining the budget deficit down dramatically to maybe 4 or 3 percent of GDP, that going to be still very hard work over the course of the years ahead.

QUEST: So a chancellor that doesn't stand up tomorrow and warn of that, is he being disingenuous?

KING: Absolutely. But I think to be fair to Mr. Darling, I'm sure, he'll say the hard work is still out there. There is going to be some big issues to tackle over the course of the next three or four years. The big debate of course between the Tories and Laborers, when do you start delivering the cuts? The Tories wanted to deliver them earlier. Labor wanted to wait a little bit longer. But I think both agree that further cuts will be necessary over the course of the next few years.

QUEST: Turning to the Euro Zone, and to Greece, the failure of the Euro Zone to prop up Greece, or to come up with a credible solution is now starting to get seriously damaging , isn't it?

KING: The problem all along has been that we have a monetary union, but without any kind of fiscal union. And in one sense Greece is a big test of this underlying weakness within the Euro Zone. We don't really worry about California going bust, because the U.S. is a federal system. We worry more about the possibility of Greece being in trouble because it is not obvious what kind of federal system the Euro Zone has when it comes to bailing out countries in fiscal difficulty.

I think also, one of the other problems here is, of course, that the Germans are very unsure about what kind of bailout they could possibly deliver without running into problems with their constitutional court, which is almost acting like a kind of veto on any kind of European-wide support for Greece. Having said that, I think the chances of an IMF package coming through are growing day by day. It seemed to be a possible solution from a German perspective, and maybe the French are slowly warming to this idea, even though I think they in an underlying sense would much prefer to see a European solution.

QUEST: So, do you believe-and I'm reading the briefing and economics notes that you put out suggests that you do believe, that there is a-that the risk of contagion is contained. But then where does the next balloon, if you like, come out in this one, if you squeeze it?

KING: Well, I think the balloon might not be actually in the Euro Zone at all, but key problem for Greece is demonstrated that for all countries in the West they all have significant fiscal difficulties. The fact that Greece became the first on the radar screen is partly because the peculiarities of how the Euro Zone works. But what is clear is that for any country in the West there is going to have to be a tough period of fiscal consolidation ahead.

And it is not clear exactly which countries can deliver that. And it depends really very much on the local politics of that particular country. As we were saying earlier on, with the U.K., the fact of the matter is the U.K. will have to deliver dramatic fiscal tightening over the course of the next few years, big public spending cuts, and that really hasn't been tested politically at this stage.

QUEST: But it is going to be, because it has to be.

Finally, is it possible-never mind probable-is it theoretically possible, Stephen, for a country to leave the Euro Zone?

KING: Ah, it is theoretically possible in a sense, that any politician, in one sense it is possible, but it would be incredibly difficult. If you think about the situation from, say, a Greek point of view. Imagine that people begin to hear a rumor that there is going to be the introduction of drachmas, rather than euros. What happens to the Greek banking system? Surely everyone takes their money out of Greece as fast as possible, the banking system collapses before you even get around to the introduction of a new currency. So, although it is, in one sense, possible, it is practically, terribly, terribly difficult.


QUEST: And that is something to bare in mind as Stephen King was saying. We've heard so many people say, why didn't they leave? Kick them out. But when you actually try to put it into practice, the possibility and the reality of somebody leaving the Euro Zone, well, you get the idea.

Now, a defeat at the polls, a cabinet shake up, and also a nationwide strike, not this isn't Greece we're talking about, it is France. The links between these political headaches, when we come back in a moment.


QUEST: Right, hundreds of thousands of public workers in France, they are angry, and they're letting anybody who wants to know, why they are taking action. It came in the form of a 24-hour strike on Tuesday. The work stoppage has hit services nationwide and that includes the schools, the transportation systems, and courts. Labor unions are angry about job losses and pension reform. Workers hope the strike sends a message to President Sarkozy that they will not tolerate the current state of the economy.

Commuters coping with transportation disruption during the strike, well, they're angry as well.


UNIDENTIFIED FEMALE (through translator): Every time there is a strike we don't understand why, it's too much. We are the ones affected by it. I don't know what the deal is, but we are fed up. We can't make it on time. We can't work. We can't do anything. I'm fed up.


QUEST: Fair enough, indeed. And she's not alone. Both sides in this seem to be fed up and they're taking it out on the government. CNN Senior International Correspondent Jim Bittermann is monitoring the story from CNN Paris and he joined us via broadband to find out and to tell us what the strikers really want.


JIM BITTERMANN, CNN SR. INT'L. CORRESPONDENT (On camera): Well, there is a lot of things they'd like to see, for instance, they would like to see the reform program Mr. Sarkozy stopped, particularly in the area of retirement reform, because there is a program of legislation that is going to go-going to start taking place very soon, in the parliament, in which Mr. Sarkozy is going to reform, somehow, the pension schemes for most workers in the country.

And it is not clear, exactly, what the government is going to go for, but the workers are fearful that it is going to be bad no matter what it is. That basically could mean that they'll have to work longer than 60 years, which is the present retirement age, perhaps to 62, which may sound mild compared to some other countries in Europe. But it is enough to get workers out on the streets here in Paris.

QUEST: Yes, but you see the thing is a reshuffling of the government, or the cabinet, the strikes taking place, an economy that is only just coming out of recession, will President Sarkozy take this as being a serious worry and threat? Or is it just one of those things that will be dealt with?

BITTERMANN: Well, I think probably the latter is the case. The fact is what we have seen from his is that in terms of what he's done in the last 48 hours, since the loss of the elections on Sunday, is a very minor cabinet reshuffle. In fact, in some ways, it may even make his cabinet more antithetical to labor. He's basically replaced the Labor secretary, Labor minister, with an even harder liner, a person that was a controller of the budget in the Finance Ministry. And the labor unions, today, on the streets were saying this is a bad choice. It is someone who is not going to be very sympathetic and maybe even tougher on the unions than the previous Labor minister.

QUEST: Need to very quickly take you to Greece, where the dispute between whether or not the European Union should bail out Greece is still rumbling on. Just remind us, when push comes to shove, where will Sarkozy go on that?

BITTERMANN: He is definitely not for a bailout that looks like a bailout. Basically, he and Merkel have been meeting about this, Chancellor Merkel, have been meeting about this but they really don't want to do anything that looks like a bailout. There maybe something cut-some deal cut behind the scenes that may solve Greece's problems. But you won't see anything, I don't think, that is going to look like a bailout, Richard.

QUEST: So, tonight's Quest question, when is a bailout not a bailout? When it is in the European Union.

In a moment, U.K. investigators say they have broken open a sophisticated insider dealing right. It goes right to the heart of London's financial district. Stay with us for that story in just a moment.


QUEST: Good evening, I'm Richard Quest. QUEST MEANS BUSINESS, this is CNN.

Tonight, six men are under arrest in London as part of a investigation into insider trading. Britain's financial watchdog says a number of them are senior professionals, I beg your pardon, in London's financial district, the City of London.

Jim Boulden is with me now to tell us what this is really all about.

BOULDEN: Well, as you say, this morning there was an amazing number of raids around London and Oxford, and other areas. The FSA says it had more than 14 0 of their investigators involved in this, this morning.

And they used the serious organized crime office, that is the SOC. The first time the two have ever gotten together. And the FSA tells me it is because they can't knock down doors. That is not what they do. They do the investigations, but they actually brought in this Serious Organized Crime group, as well. They are calling this their biggest number of arrests in alleged insider trading.

Now, we do know one of the companies involved. It wasn't made clear from the FSA. But Moore Capital Management did put out a press release a few hours ago. We have a -- a bit of a quote from them, as well.

They're -- they're a big hedge fund. One of their individuals on the executions desk was arrested. But they're making it very clear that the investigation concerns possible insider dealing of the employee and that it does not involve any of the funds managed by Moore Capital. So they want to make it very clear.

What I'm interpreting that is meaning that, A, this person was allegedly using their private account. What it seems is senior members of some other banks were allegedly insider trading -- passing on information and then that person was using that money.

QUEST: So what -- so the -- the allegation, as I understood it, as the day wore on, is certain banks had information. They then passed it to other people, allegedly, who then traded on that information.

BOULDEN: Right. What's really important here is the FSA -- I think - - and a couple of years ago we would have had maybe a little press release. We might have had some information. But they're -- they've -- they've gone out of the way today to make it very clear because they're under fire. They want to make it very clear. They think -- people think it's been far too easy to insider train in the U -- the U.K.

There's been five, now, sets of arrests since 2008. And even just last week, the FSA said they're going to hire a lot more investigators because they want to make it very clear that -- that London is no longer the easy place, because, frankly, it has been. And even the opposition Conservative Party has said they're thinking of eliminating the FSA...

QUEST: Well, that's the one thing, Jim, convictions and...


QUEST: -- are something else.

BOULDEN: You've got 24 hours since the arrests to charge or release.

QUEST: Right.

BOULDEN: So we'll see about that tomorrow.

QUEST: And not only that, the FSA is now starting to adopt some of the policies...


QUEST: -- of the U.S. -- the SEC...


QUEST: -- the FBI...


QUEST: -- the U.S. attorney's office, by plea bargaining...

BOULDEN: Exactly.

QUEST: -- by getting people to cooperate.

BOULDEN: A lot of people don't realize that it's actually not allowed to plea bargain in -- in a lot of countries. In the U.K., until last year, they couldn't use plea bargaining in these kind of deals. So they have a whistleblower Web site...


BOULDEN: They have a phone number you can call if you want to blow a whistle on somebody...

QUEST: In...

BOULDEN: -- in the U.K....

QUEST: Oh, yes.

BOULDEN: -- on the FSA Web site. And there's a little form you can fill out if you think that there's something going on. And now they can use plea bargaining because it's very, very hard to use -- to say someone's been insider trading.

QUEST: Stay across this one, please, Jim.


QUEST: We need you to keep looking at this and tell us about where this was to report.

Now, we head to Wall Street, where stocks you saw maybe -- if you weren't with us earlier in the program, the stocks are doing rather well at the moment. Some gains with just 30 minutes left to the trading session. And that has to do with the latest reading from the housing front.

Felicia Taylor is standing by in New York.

Now, we had those housing numbers. We also have a market that seems to be up 60 odd points.

FELICIA TAYLOR, CNN CORRESPONDENT: Yes. They're doing, actually, much better than really expected. I mean yesterday we had a -- a 43 point gain. Now we're up almost 1 percent on the Dow. The -- the housing numbers were kind of mixed, though. And we really have a long road to recovery when it comes to the housing market here in the United States.

Existing home sales actually fell, but just by 6/10 of 1 percent, in February. That is the third straight monthly decline. That's why there's concern about a recovery of the sector.

But the good news, on the flip side, is that that dip was smaller than expected and a lot better than what we saw in the month of January, when existing home sales plunged by more than 7 percent.

Now, a federal tax credit for first time homebuyers was extended and expanded last year. That helped the sector stabilize a little bit in 2009. But that ended. So we haven't seen that kind of a nudge in existing home sales this year. And so far, we just -- we haven't seen anything like that.

The key here, though, is that we have to get that job market moving again and in creation of jobs, so that there's a healthy gain on the employment front...

QUEST: Right...

TAYLOR: Once that happens, people are going to be comfortable about buying a new home.

QUEST: All right. As you know, yesterday, we spent a lot of time on this program talking about the health care reform that -- that had been passed by Congress. Today, President Obama, you'll notice, because you've been watching, today President Obama signed the bill into law, which, of course, must be good, ultimately, for the -- the drug companies, who, ultimately, will sell more medications to -- to -- to patients.

TAYLOR: It's kind of a mixed situation on that one, too, though. I mean if nothing else, by signing this bill, it has removed any kind of uncertainty that's been sort of lingering for months about what's going to happen with health care reform in the United States. Health care stocks did do well on the news, such as hospital operators and health insurers and, obviously, the pharmaceutical companies that you mentioned.


TAYLOR: They all moved higher yesterday.

But pharmaceutical shares are continuing to climb today. Merck, Pfizer, Bristol-Myers are all on the up side. But don't forget, these companies are also going to have to pay out great like billions of dollars worth of payments, especially by private insurers. So some of the companies aren't necessarily going to benefit by this sweeping reform.

Consumers, though, they are going to have some advantages in the next few months. In about six months, insurers will be able to keep young adults on their parents' plans until the age of...

QUEST: All right...

TAYLOR: -- 26. That's not bad.

These companies are also going to have to cover sick children, which they didn't have to before then. But most of the reforms aren't going to kick in until 2014. So this rally is probably going to be a little bit short-lived.

QUEST: Hey, hey, Felicia, you know, listen, I -- I am not going to get away with claiming to be 26. You know, there's no way. I'll on...


QUEST: I'm on me own here for this one.


QUEST: You've been -- you stand more of a chance.

TAYLOR: I think I had to start paying my own insurance when I was 21.

QUEST: All right, Felicia, many thanks.

Tomorrow, let's talk about the markets, because Jim Boulden and I are having an argument about whether, actually, the last three or four weeks has been good. We haven't got time to develop that tonight, but we'll talk tomorrow.

Many thanks, Felicia.

TAYLOR: Oh, I've got an answer for you tomorrow, though.

QUEST: Yes, you're too late for that.

There's no time for that.

She'll be back.

I have to have the last word, Felicia Taylor, in New York.

Look, when I come back in just a moment, Britain's Union flag planted on the moon -- is that fantasy?

Probably. But it does mean the U.K. is becoming more involved in space exploration. The government hopes it will put a rocket under a part of the economy that's exotic, in a moment.


QUEST: Now, you don't often see sights like this, except, of course, here on CNN. One day, though, in the U.K., perhaps they're hoping for their very own version of Cape Canaveral.

The U.K. has launched today a national space agency. It will take over the running of all the various space functions of different government departments in Britain. The U.K. government says it is keen to support an industry that is actually doing rather well. It has many tens of thousands of jobs and billions of dollars every year.

But, of course, it's a long way from this to actually having a space full scale operation. And when you look at where the U.K. Brits in space, you've got to really ask what role could the bit -- Brits play?

Let's start with NASA, for example, with its multi-billion dollar budget. But even NASA is having cutbacks. The Constellation program has been cut back and scrapped because the moon shot has decided to be too expensive and instead the administration is hoping that more private companies will be paid to pick up the slack -- private enterprise into -- into space is the idea.

But NASA isn't alone because much attention is now coming to ESA, the European Space Agency. Its annual budget, $5 billion, is perhaps minnow compared to NASA. But ESA is performing some very strategic roles not only with the Space Station, but also with space research.

Britain is a member of ESA, so you might well ask, why does Britain need to have a new agency just for its own space exploration?

But remember, Germany and France also have their own space agencies.

This is not about putting a man in space or, indeed, exploration into the deepest part of space. This is about fostering the sort of space industries and technologies, as I heard from the U.K. science minister, Lord Paul Drayson, who joined me earlier.


PAUL DRAYSON, MINISTER FOR SCIENCE AND INNOVATION: We hope and expect this will bring better efficiency and coordination to all of the many aspects of U.K. space policy, whether that's legal, research, investment to support industry -- all aspects of what the U.K. does in space science and space industry.

And the reason we're doing this now is we believe that at this point in the economic cycle, we have a world leading industry in -- in space. The U.K. is second only to the United States in terms of space science. We have an industry which employs something like 68,000 people in the U.K., a world leader in the manufacture of the most advanced satellites.

And it's been a bit of a hidden jewel at the moment. The creation of the agency is...

QUEST: But how...

DRAYSON: -- about getting...

QUEST: Well, yes, I mean it's been so hidden, I've never heard of it. I mean I -- I -- you know, until -- until today, I mean if you had asked me, what does the U.K. do in space, I would have said look up at the stars.

DRAYSON: Well, for example, you didn't know, then, that we have here in London, FTSE 100 company Inmarsat, a world leading satellite communications company. We have in Astrium one of the world's leading companies in space technology satellites. In some of the new emerging areas of small satellites, a company that came out of Surrey University, Surrey Satellites, and, of course, the Virgin Galactic space tourism business, which we -- we hope will -- will invest in a space port here in the United Kingdom.

QUEST: But if you've got all that, and bearing in mind the billions that it does cost for -- for -- for large scale space exploration -- and you'll be familiar with my next question well enough -- what good, if you like, do relatively small sums of money do in such a giant industry where huge sums are involved?

DRAYSON: Well, the U.K., despite the modest 230 million pounds, which we invest, is a world leader in the space industry. We have about 6 percent of the global space market. We hope to grow that to about 10 percent over the next 20 years, creating about 100,000 new jobs in the process.

And the reason that we believe the U.K. can do this is that we've seen that the U.K. space industry has really bucked the recession over the last few years. The satellite manufacturing capacity...

QUEST: All right...

DRAYSON: -- is sold out for the next five years. This is an area where the U.K. is doing very well.

QUEST: Why do you think we are still fascinated by space and the announcement by President Obama that they were not going back to the moon was greeted with such disappointment, whenever a spacecraft fails to reach its destination, there is a -- a feeling of regret.

Why is this, do you think?

DRAYSON: Well, I think it -- it -- it goes to the heart of what's best about mankind's ambition. I think that space, whether that's robotic exploration of deep space by probes or manned exploration with the Apollo program, it represents the sort of highest potential that humankind can achieve.

But it also answers some of the biggest questions -- where we've come from, what is the origin of the universe, some of these deep questions of physics.

I think that the inspirational impact on young people shouldn't be underestimated either. We had the UK's official astronaut, Major Tim Peake, at the launch this morning. And when he talks about the training program that he's going through at the moment as part of the ESA mission, you could see all the schoolchildren in the room paying avid attention...

QUEST: But...

DRAYSON: -- because it really inspires them to see the relevance of science and engineering to their -- to their futures and their potential careers.

QUEST: OK. Finally, Lord -- Lord Drayson, assuming I have a check in my hand for $100,000 or $200,000, whatever the cost is, to go up on the Virgin Galactic spacecraft, for you, would you go?

DRAYSON: Oh, absolutely. I'd love to go. Yes.

QUEST: Well, it's a shame. I haven't got a check.

Well, many thanks, indeed.

Thank you, sir, for joining us today.

DRAYSON: Thanks a lot.


QUEST: I'm sure maybe some of his political opponents would find the money.

Anyway, nice to have had the space -- the science minister, Lord Drayson, on the program.

A giant leap for commercial space travel -- the world's first ever commercial craft has taken its maiden flight, marking a milestone in Virgin Galactic's mission to open space travel to the private traveler. The flight labeled a huge success. Virgin Galactic's CEO, Richard Branson, calls it a major step on the road to achieving the dream.

On our Web site, questmeansbusiness, we're asking whether you think it's worth spending billions of dollars on space exploration and bothering to go back to the moon.

Radu B.T. says: "Yes, we should bother. We could save the Earth. It's not a joke. This could actually be done, but only if you let the private interests do its part without any interference from the government.

One more. "The answer is no, no, no," says K.M. "Human beings do not control Mother Earth. Earthquakes, floods, fire, cyclones -- don't you understand why these things happened? It's because of stupid human beings."

I'm not sure what that's got to do with going to the moon, but you get the idea.

To come -- Joseph Fitzgerald: "To compare Britain's space ambitions with the U.S. is ludicrous. Great Britain spends $300 million a year in space. NASA's budget is $19 billion a year."

Now, we've just -- that's the way the blog looks. You can, of course, join our debate at is where you can have some thoughts.

Now, we'll check out how Hong Kong is coping with the thick smog in just a second.

Guillermo is with us for the European weather forecast.

I can't decide whether or not it's actually getting better, getting worse, raining, warmer or spring has sprung.

GUILLERMO ARDUINO, CNN METEOROLOGIST: All of the above. I think that you noticed this morning things were a little bit better, though, because the problem that we have in here is this jet stream that is dragging the storms.

Now, that's why you see all the good conditions in the south and not in the north. But there are people who are in worse conditions, like in Scandinavia. We get all that activity, in this case, coming up with snow.

But there are some areas of Europe that do not look very nice. And we have, for example, the storms in Italy. They are not that bad right now, as we speak. But the Balkan Peninsula sees a little bit more of that action. And that's going to remain very unstable.

Now, if you try to find Britain behind these clouds, of course you see the rain right now, and that's what we got before. But the snow is moving into Scandinavia. So this morning was much better. London is -- has not seen the worst yet. But I promise that things are, this week, turning for the better. But we will see some more rain showers, of course, coming up and down.

Now, look at Amsterdam, with those winds. That's the same problem that we see in Brussels and into Scandinavia. It's all associated with the same system that is coming off the Atlantic, going through Great Britain and then moving north into Scandinavia.

As for France, we will see mostly clouds, but the most important thing in here is to remember that temps are rebounding, that we're going to see London at 14 degrees tomorrow. Tomorrow, this morning was pretty nice, I think. Sixteen in Madrid. So even Istanbul now 12 degrees. We are -- all but the northern parts of Europe, touching the -- the double digits.

Now, what about that Hong Kong thick smog that you were talking about?

I promise that tomorrow, we will see the arrival of this front into Hong Kong. That is bringing the rain. And that rain is going to clean the situation in the atmosphere in Hong Kong. It's been unbearable. I know it's been extremely thick. We have like 3,000 meters of visibility only. But we have to wait until this system comes along and brings that rain shower that is going to clean everything -- not entirely, but it's going to help a great deal.

And remember, the sandstorms that we saw in Mongolia, we saw in China and into Japan and Korea are mixed into the factor in this case. That's why the environment was not very nice at all into Hong Kong -- Richard, I hope you feel better.

QUEST: Oh, I -- well, I'll be feeling better as soon as the sunshine starts up again.

All right, Guillermo, many thanks, indeed.

ARDUINO: Thank you.

QUEST: All right, Guillermo at the World Weather Center.

When we come back, we have to turn back to Google. The escalating dispute with China is just one aspect. But Google got a bit of a break in Europe. A court has ruled that Google is not to blame if fake adverts turn up in its search results.

What's it all about.

We'll be back.


QUEST: A trademark dispute between Google and a group of French brands has ended with both sides claiming victory. The European Court of Justice ruled Google's practice of selling key words, including brand names, does not violate trademarks. LVMH, the luxury company, and other plaintiffs, took Google to court. They wanted to limit the sale of their trademark names.

The court ruled there wasn't a problem as long as the advertisers that used the name online didn't pass themselves off as the real LVMH. And even if -- and if they did, the advertiser, not Google, was liable. But it said Google would have to prove it could spot and remove ads that were misusing trademarks and were welcomed by LVMH. That's Louis Vuitton Moet Hennessy, Louis Vuitton to you and me.

Now, John Mackenzie is a leading intellectual property lawyer.

He joins me now to make sense of all this.

So, both sides say they won, but who do you think really won?

JOHN MACKENZIE, INTELLECTUAL PROPERTY LAWYER, PINSENT MASONS: Well, it's difficult to say. It's a -- a school draw in -- in a certain respect. I mean the -- Google will be delighted because this was the first major attack on their ad word system and what has happened is the court has said it's not trademark infringement. They've said it's not using the trademarks.

QUEST: Right.

MACKENZIE: So they'll be delighted.

QUEST: Right. But so -- I -- and, of course, what was in it, though, if it's not trademark infringement, what was in it for the companies?

MACKENZIE: Well, the -- the companies are trying to control the adverts that are being generated. And they went after Google. They asked Google to stop the trademark infringement because that's easier...

QUEST: So what did you think...

MACKENZIE: -- easier...

QUEST: But what did the companies get out of it then, because, I mean, in -- in terms of the decision?

Because if Google is -- is not...

MACKENZIE: Yes, well, what the companies got out of it was that it -- the court made clear that having -- sponsoring trademarks was an infringement by the advertisers.

QUEST: But yet that's a stuff that -- that's a straw man, isn't it?

That's a total straw man, Andrew, because -- Sir John, because you know that at the end of the day, you're not going to go against those advertisers, many of whom are fly-by-nights.

MACKENZIE: Well, there's a third part of the decision that is good news for the brands. And that third part is that Google will -- were reminded of their obligations in relation to take their notices. In other words, if the brands go to Google and say we've found an infringement, then Google could be liable if they don't take those adverts down quickly.

QUEST: You call this a draw. It seems to me that, to some extent, hands down, Google won, because, at the end of the day, the onus is now not -- Google -- the onus is off them now and -- unless they've got to go against some people and somebody complains.

But they can do the crucial thing they want to do, which is sell the names.

MACKENZIE: That's -- that's right and -- in as far as it goes. But they have to be terribly careful if they're just going to leave the...

QUEST: Right.

MACKENZIE: -- the decision as it -- as it stands, because the -- the brand owners will be watching. The brand owners will -- will want to say while we object to this activity and we object to that activity.

QUEST: How important are these?

I've got to -- I have to hold me hand up here and say I've never actually clicked on one of the paid ads. I click on the searches, but I've never clicked on the paid ads to the right and at the top.

So tell me, are these really all -- all they're cracked up to be?

MACKENZIE: Well, Google would tell you they -- they are -- that's the bedrock of their commercial and certainly the -- the brands that we worked with, they -- they spend a lot of money with Google and -- and they can measure the results that come through. So, yes...

QUEST: And by a lot you mean, you know, in the thousands -- hundreds -- the hundreds of thousands?

MACKENZIE: Hundreds of thousands of pounds go through the -- this system, because Google is a -- it yields results. And that's why the brand owners use it.

QUEST: Fascinating. Many thanks, indeed.

Thank you, Mr. MacKenzie, for coming in.

Come back again, please, and help us understand these things.

Much appreciated.

Now, when I come back in just a moment, I will have a Profitable Moment.

Stay with us.


QUEST: Tonight's Profitable Moment.

We have spent quite a lot of the program talking about the issues and the challenges of Google. Google and China go much deeper than just the search engine's problem. They go to the very heart of how Western companies will do business in China. Now, you'll agree, you've heard Google took a risk when it agreed to accept Chinese censorship when Google entered the Chinese market in 2006. In doing so, it damaged its reputation as a company that, until then, had been run on ethical values. It was felt Google was just like everyone else -- it sold out when there was profit involved.

Now Google claims it can no longer operate in the environment of surveillance and Web censorship. Its decision will be welcomed by lovers of free speech. But perhaps Google will be regretting they ever doubted that principle in the first place back in 2006.

The issues of Google, which we'll return to in the days and weeks ahead.

And that is QUEST MEANS BUSINESS for this Tuesday edition.

I'm Richard Quest in London.

Whatever you're up to in the hours ahead, I hope it's profitable.

Christiane is after the news headlines.