Google gets nod from China to keep search page

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.  
 FACE-SAVING COMPROMISE  

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 BUSINESS 
 
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.

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