If you thought the Leno/Conan/NBC fiasco was the most interesting set of contract negotiations happening in the world, think again.

China will be forced to decide on unfettered web access for 300 million people in a censorship clash that threatens to redraw the boundaries of the internet.

Google, the world’s biggest search company, was in talks with the Chinese Government last night after saying that it would abandon operations in the country unless state authorities left it free to operate without censorship. Its demand to be allowed to operate its Google.cn search engine free from censorship came after what it described as a “highly sophisticated and targeted attack on our corporate infrastructure originating from China”.

Further investigation revealed that attempts had been made to access the Google mail accounts of Chinese human rights activists. It said that at least 20 other companies were also targeted…

After the company presented its ultimatum, some users claimed that previously-banned photographs were available on the site, including one of a protester holding the image of a man standing in front of a tank during the 1989 Tiananmen Square crackdown. Google insisted that it had yet to lift the filters that Chinese law requires it to install.

To its credit, the White House is backing Google publicly, although the cognitive dissonance between Google’s ultimatum to China and The One’s continued outreach to Iran is odd. China’s actually a small market for the company — just $350 million, according to the Times — so they can afford to walk away, which is what I assume is going to happen. China can afford to let them go, too: Baidu, not Google, is the country’s most popular search engine and will pick up the slack. It’s important politically, though, for the precedent it sets. Given all the pats on the back Google’s going to get for throwing down the gauntlet (after getting its hands good and dirty with Chinese censors for years, natch), which tech company is going to want the PR of replacing it because its own standards of censorship are lower? At the very least, the cost of doing business with U.S. search engines just got much higher for China.

Note the cause of Google’s pique here too — a hack attack aimed at digging up private information about human rights activists. If you read nothing else on the site today, read this harrowing Daily Beast piece about an FBI report on China’s gigantic army of extremely sophisticated cyberspies who routinely target the most sensitive data systems in America. Sample quote: “There is no telling how many breaches there are that we haven’t yet picked up.” I wonder if the Google hack attack was something new, something old that they simply finally tired of, or something old that they hadn’t realized until now has been going on all along.

Update: Also interesting, and encouraging: “Within minutes of the announcement, mainland users were calling up page listings on Tibet, Falun Gong and the 1989 Tiananmen Square massacre that had been hidden for the last three years.”

Update: A timely reminder from the Onion that it’s not only the ChiComs who see and hear all.