The Chinese government states that companies, domestic or otherwise, have to abide by Chinese laws. "We welcome international Internet companies to do business in China in accordance with the law," said Jiang Yu, a spokesperson for China's Ministry of Foreign Affairs. She didn't deny Google's allegations of cyber attacks directly, but did state that such attacks are illegal under Chinese law.
Jiang Yu further stated that "the Chinese government administers the Internet according to law and we have explicit stipulations over what content can be spread on the Internet". Of course, this case isn't about the censoring in and of itself - Google has been active in China for years, and just like many other Western companies and governments, had no qualms about catering to China's censorship and other totalitarian practices.
Therefore, it seems like Google's intent to cease censoring search results has little do to with morals, but more with it being a response to the cyber attacks, and I'm sure the fact that Google isn't as big in China as it is here also plays a role (Google's share is estimated to be around 30%, half that of its main competitor in China, Baidu).
The cyber attacks themselves were probably routed through the Republic of China (Taiwan for those who don't know their history). Chinese hackers infect Taiwanese company's computers with malware, turning them into zombies for botnets, which are then used to perform the actual attacks. Trend Micro states that about 20 million attacks against Taiwanese computers took place in August 2009 alone.