Google’s China affair may involve double agents or people who are childishly naïve, bought off or have families with a gun to their heads.

Quoting two unidentified sources, Reuters says Google is investigating the possibility that employees at Google China could have worked with the cyber-terrorists who attacked the company’s corporate infrastructure last month, leading Google to refuse to censor its Chinese search results anymore and threaten to exit the huge Chinese market with its 384 million Internet users completely.

As a result the US government said it will file a formal protest with the Chinese government and both Germany and France have warned their citizens against using Microsoft’s Internet Explorer web browser, which has been implicated as the hackers’ attack mechanism, until its vulnerabilities have been fixed.

McAfee says IE 6, 7 and 8 contain the vulnerability used. It also claims the attackers called their operation “Aurora.”

Google, which is still filtering its Google.cn results, refused to confirm the story when Reuters contacted it but didn’t deny it either. It told the wire service that “This is an ongoing investigation, and we simply cannot comment on the details.”

Of course it could be a routine investigation but it’s suggested that “moles” could have pointed the sophisticated Hydraq Trojan attack Google suffered at exactly the right people inside Google to send their backdoor-laden e-mail to. Those folks would have had the kind of security clearance and access the hackers were after. Google said last week it lost IP in the attack but didn’t say what kind, but still making its industrial espionage.

Reportedly some Google China employees were denied access to the company’s internal networks after Google went public with the attack last week, others were put on leave and still others transferred to other operations in Google Asia.

The attack reportedly involved some 34 major companies. So far Yahoo, Abode and Juniper Networks are the only ones to come forward in addition to the law firm representing the US ISV naming the Chinese government in a $2.2 billion suit over poached code. It is believed Dow Chemical and Northrup Grumman were also hacked.

Yahoo’s Chinese partner Alibaba has criticized Yahoo for backing Google’s play calling it “reckless” given the lack of facts so far. Microsoft CEO Steve Ballmer says Microsoft won’t support Google. The Chinese government, through its various mouthpieces, is trying to shrug the incident off.

Meanwhile, foreign journalists in China, including the AP, are complaining that their Gmail accounts were hacked and their messages copied and forwarded somewhere, according to the Foreign Correspondents Club of China Monday.

• UPDATE: Adobe & IE Implicated as China’s Spy Holes
• Google Still in Communist Chinese Limbo