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China renews Google's licence
Move follows firm's decision to stop automatically rerouting searches to Hong Kong site.
Last Modified: 10 Jul 2010 07:01 GMT
Google concedes to Chinese pressure in order to renew its internet license for at least one year [EPA]

Internet search engine Google has had its Chinese licence renewed for at least another year after months of dispute over censorship of search results.

The licence renewal, which was announced by Google on Friday, was granted by the ministry of industry and information technology after the internet company stopped automatically rerouting search requests from mainland China to a Hong Kong service. 

Internet users searching at Google.cn from within mainland China will now be required to click on a link before they are taken to a site based in Hong Kong.

The compromise allows the US-based company to continue to operate in the world's biggest internet market and removes a potential diplomatic sticking point between Beijing and Washington.

"It's not a complete surprise because I think the politics were that the Chinese wanted to avoid a big fight," James Lewis, a cybersecurity expert from the Centre for Strategic and International Studies, said.

"With [Chinese president] Hu Jintao coming to Washington it was not the best time to reshape the agenda of the meeting by messing with Google."

Google and the Chinese government have been trying to uphold their conflicting principles while protecting their economic interests, and Lewis said that this decision was "good for Google as well as for China".

Subversive search results

Earlier this year, Google vowed to end its four-year practice of omitting search resultsthat the Chinese government considers subversive or pornographic, triggering an angry response from Beijing.

Timeline: Google China spat

 Jan 12: Google says it is reconsidering the future of its China operations after it was targeted by "sophisticated" cyber attacks originating in China.

 Jan 14: China says all internet firms in China must follow Chinese laws.

 Jan 15: White House backs Google saying it has "serious concerns" over China's online censorship.

 Jan 21: Hillary Clinton, US Secretary of State, urges China to carry out thorough investigation into attacks.

 Jan 29: Google CEO Eric Schmidt says company opposes censorship in China.

 Feb 5: China denies it was to blame for cyber attacks, following media reports that the attacks had been traced to two Chinese schools.

 Mar 12: China warns Google it would be "irresponsible" if it defies Chinese censorship laws.

 Mar 21: Editorials in Chinese state media accuse Google of politicising dispute and seeking to promote US agenda.

 Mar 22: Google announces it is shutting its Chinese search site and redirecting users to its uncensored Hong Kong portal.

It also blamed Chinese computer hackers for an attack aimed at stealing the company's technology and email information from human rights activists.

As soon as Google published a blog post in January, publicly challenging China's censorship policies, "it became clear that Google.cn could never operate the same way again," Scott Kessler, an internet analyst at Standard & Poor's, said.

Google wanted to stay in China because the country is expected to be an internet growth area for decades.

But the latest compromises threaten to curtail Google's growth in China simply because it requires hundreds of millions of users to take an extra step to get to Google's search engine.

The single additional click required to get through to the Hong Kong-based site could diminish traffic and send users to more convenient options, such as the homegrown Baidu.com.

If that happens, Google will have fewer opportunities to show the advertisements that bring in virtually all its revenue.

Even if users in mainland China decide to use the service, China's government can still block results by using technology controls commonly known as its "Great Firewall".

Still, investors were relieved by the decision, with Google shares edging up 2.4 per cent on the news. However, they remain down by about 25 per cent so far this year, partly due to the spat with China.

Google's search market share in China now stands at about 30 per cent, down from roughly 35 per cent at the end of last year, according to the research firm Analysys International.

Baidu's share has risen slightly to about 60 per cent.

China is not yet a big moneymaker for Google, accounting for an estimated $250m to $600m of Google's projected $28bn revenue this year, but it is expected to become a more lucrative market as the economy matures.

Marianne Wolk, an analyst with Susquehanna Financial Group, believes that Google could be soon earning around $5bn to $6bn annually from China's online advertising market if it can manage to keep its market share in the 30 per cent range.

The makeover of Google.cn is bound to hurt the company, but "it's a sacrifice well worth making if it means they can stay in China," Scott Kessler said.

For China, losing a technology powerhouse would be a setback in its effort to cultivate more innovation and in attracting foreign investment.

Source:
Agencies
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