SHANGHAI/NEW YORK, (Reuters) – China gave Google Inc approval to keep operating its Chinese search page, resolving a months-long censorship dispute that had threatened its future in the world’s top Internet market.
The move, announced by Google yesterday, potentially removes another thorn in warming U.S.-China ties and reflects Beijing’s desire to be seen as friendly to major foreign companies in spite of ideological differences, analysts say.
Shares of Google rose 2.4 percent as the news erased some concerns that China would eject the company for taking a hard line against Web censorship. But analysts said Google’s position in China remains fragile and that the country likely will account for a fraction of Google’s revenue for some time.
“It’s good for Google that they still have some presence. But they’re clearly in a more compromised competitive position,” said Ryan Jacob of the Jacob Internet fund, which holds Google shares.
“Google is going to have a very difficult time gaining share, and will probably lose share over time.”
Google had embarrassed China in January by drawing global attention to Beijing’s Web censorship practices, a function of the government’s belief that keeping a tight grip on information helps it maintain control. The Internet company also accused Chinese hackers of orchestrating a sophisticated cyber attack on Google and other major U.S. companies.
Google had declared it was no longer willing to offer censored search results, triggering a row that exacerbated tensions between Washington and Beijing, which also sparred over China’s currency, U.S. arms sales to Taiwan, and Tibet.
But tensions have subsided in past months, and the Google deal could further help China’s ties with Washington, which has forcefully argued against Internet censorship and demanded that Beijing investigate and explain the alleged cyber attacks.
Analysts, however, said that while the United States would likely welcome the Google agreement, the deeper divisions over Internet policy and hacking would likely continue to simmer.
Google said yesterday China has renewed its webpage license, which means it can continue to run the Chinese language search site google.cn. There was no immediate comment from the Chinese government.
The news comes after Google offered Beijing a face-saving compromise last week: it stopped automatically rerouting google.cn to its uncensored Hong Kong search site. Instead, visitors to google.cn have to click once to go to the Hong Kong page.
Analysts estimate Google’s revenue in China at $300 million to $600 million, just a slice of its $24 billion annual revenue. It has around a 30 percent share of China’s 7 billion yuan ($1 billion) search market, which local rival Baidu Inc dominates. Baidu shares, which have soared about 75 percent since Google’s problems emerged, fell 1.6 percent.
Elinor Leung, analyst with CLSA in Hong Kong, expects traffic from Chinese visitors to continue to drop for Google and for advertisers to turn to local choices like Baidu. “This doesn’t really change anything about Google’s position in China. The redirection to its Hong Kong site is ongoing so it is the same problem as before,” said Leung.
Google’s Chinese headaches come at a time when investors are concerned that the company’s growth rate is slowing. Google faces a plethora of regulatory inquiries and is spending heavily on new but unproven businesses, such as its Android mobile operating system. Its stock is hovering at its lowest level since September 2009, and has dived 26 percent in 2010.
“Google has been a company which people have invested in because they expected the company to outstrip expectations — and it’s not that company anymore,” said Hamilton Faber, an analyst at Atlantic Equities. Its “growth outlook is certainly slowing from where we were a few years back. The company seems to be back on the path of heavy levels of investment. We are back into a situation where margins are declining.”
China offers Google a huge growth arena and the world’s No. 3 economy has made no bones about its desire to attract foreign investment and technology. With nearly 400 million users, China only has an Internet penetration rate of 25 percent with huge market opportunities in search, e-commerce and online gaming, analysts say.