Welch on China: Watch Rio Tinto, Not Google

When it comes to China, American business should pay more attention to the the Rio Tinto trial than the Google fight, according to business icon Jack Welch.

"Rio Tinto is more of an issue, I think, than Google," the former chief of General Electric said in a Tuesday interview on CNBC's "Squawk Box."

Four employees of the Australian mining giant are currently on trial in China. Originally charged with espionage, they have pleaded guilty to taking bribes. They face jail terms of over 5 years. (Read more about the case here).

Welch said he believed CEOs should be more concerned about the outcome of that case in terms of developing business in the world's biggest growth market. He compared it to past situations in Colombia, where businesses hesitated to send employees for fear of kidnappings.

"Now all of a sudden if there are going to be jailings in China, that's a different ball game," he said.

As for the Google situation, where the search giant decided to drastically reduce its presence in the country rather than continue to cooperate with the government's censorship demands, Welch said the Chinese government's behavior was "terrible" but unlikely to change.

He said the situation reminded him of the days of South African apartheid, where companies had the choice of protesting by boycott or trying to stay engaged and affect change from within.

"If I were in that space — selling turbines, jet engines and medical equipment like 20 years ago — I'd be in there driving like hell and living with all the punitive stuff they do. They do terrible things to you and they make life difficult. And if they get their own supplier with the same quality you're dead," he said.

He noted, however, he was in a much different business than modern day media and communications companies.

Welch led GE , the parent company of CNBC, from 1981 to 2001.

More From Welch's Appearance on CNBC ...

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—GE is the parent company of CNBC and CNBC.com.