Google’s announcement about China is rather stunning in many respects from its candidness to the rather bold decision to potentially leave China over “[t]hese attacks and the surveillance they have uncovered–combined with the attempts over the past year to further limit free speech on the web…”.
Some may remember a few years ago that Yahoo! controversially provided information to the Chinese government that resulted in the arrest of Shi Tao and Li Zhi. There’s no evidence this impacted the decision but I would be shocked if it didn’t play any role.
It sounds like within the next few weeks we’ll know if Google and the Chinese government have come to an agreement regarding the censorship of search results. I suspect this is only a tiny part of the full story regarding google.cn.