Fantastic move, Google! Congratulations.
This was a totally ethical decision, and one that will protect their long term brand and reputation.
Yes, perhaps they knew beforehand that they were dealing with a regime that doesn't value free speech; but maybe they got sucked up in the China hype and thought they would figure out a compromise as they went along. That didn't pan out.
At least they realized the deal was wrong and pulled out. There's still time to wipe the dirt off.