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Google is poised to close China site
Published on: 2010-03-15
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Google Inc. appears increasingly likely to shutter its Chinese-language search engine, a step that would remove one of the last major foreign players from the world's most populous and fastest-growing Internet market.


A person familiar with situation said on Saturday that Google is likely to take action within weeks. Separately, Chinese authorities on Friday told local news Web sites that Google's Chinese site is likely to close and that, if it does, the news sites will be required to use only official accounts of the situation, rather than publish stories from anywhere else, according to a person familiar with the order.


Google and Chinese authorities have been in talks about the extent to which the U.S. Internet giant will be able to operate a business in China if it follows through on its pledge two months ago to stop following government censorship requirements on its Chinese site, Google.cn. Those talks increasingly appear deadlocked, and Google's hopes for being able to operate Google.cn without filtering results—which were always thin—have all but disappeared.


On Friday, Minister of Industry and Information Technology Li Yizhong, asked by a reporter about Google's plan to stop filtering results, said doing so would be "irresponsible" and warned that the company would "have to bear the consequences" if it violates China's rules. His comments reinforced expectations that the authorities will force Google.cn to close if the company stops censoring it.


Google has about 36% of China's search revenue, according to Analysys International, a Beijing-based research firm, compared to 58% for local rival Baidu Inc. The U.S. company is one of the few foreign participants with solid market share.


A combination of strict government regulation, intense competition from Chinese companies and strategic mistakes on the part of the foreign companies themselves has meant that foreign Internet companies have either struggled to make inroads in China or never entered the market to begin with.


Google's closure of Google.cn would leave the Internet in China—which has about 400 million users, more than any other country, and is adding about 250,000 more each day—almost entirely dominated by local companies.


That helps the Chinese government's efforts to control information, because it can more easily control local companies, but it means foreign participation in one of the fastest-growing parts of China's economy will be limited, and it leaves Chinese users increasingly isolated.


Google and Chinese authorities have been in talks about the extent to which the U.S. Internet giant will be able to operate a business in China if it follows through on its pledge two months ago to stop following government censorship requirements on its Chinese site, Google.cn. Those talks increasingly appear deadlocked, and Google's hopes for being able to operate Google.cn without filtering results—which were always thin—have all but disappeared.


On Friday, Minister of Industry and Information Technology Li Yizhong, asked by a reporter about Google's plan to stop filtering results, said doing so would be "irresponsible" and warned that the company would "have to bear the consequences" if it violates China's rules. His comments reinforced expectations that the authorities will force Google.cn to close if the company stops censoring it.


Google has about 36% of China's search revenue, according to Analysys International, a Beijing-based research firm, compared to 58% for local rival Baidu Inc. The U.S. company is one of the few foreign participants with solid market share.


A combination of strict government regulation, intense competition from Chinese companies and strategic mistakes on the part of the foreign companies themselves has meant that foreign Internet companies have either struggled to make inroads in China or never entered the market to begin with.


Google's closure of Google.cn would leave the Internet in China—which has about 400 million users, more than any other country, and is adding about 250,000 more each day—almost entirely dominated by local companies.


That helps the Chinese government's efforts to control information, because it can more easily control local companies, but it means foreign participation in one of the fastest-growing parts of China's economy will be limited, and it leaves Chinese users increasingly isolated.


Google and Chinese authorities have been in talks about the extent to which the U.S. Internet giant will be able to operate a business in China if it follows through on its pledge two months ago to stop following government censorship requirements on its Chinese site, Google.cn. Those talks increasingly appear deadlocked, and Google's hopes for being able to operate Google.cn without filtering results—which were always thin—have all but disappeared.


On Friday, Minister of Industry and Information Technology Li Yizhong, asked by a reporter about Google's plan to stop filtering results, said doing so would be "irresponsible" and warned that the company would "have to bear the consequences" if it violates China's rules. His comments reinforced expectations that the authorities will force Google.cn to close if the company stops censoring it.


Google has about 36% of China's search revenue, according to Analysys International, a Beijing-based research firm, compared to 58% for local rival Baidu Inc. The U.S. company is one of the few foreign participants with solid market share.


A combination of strict government regulation, intense competition from Chinese companies and strategic mistakes on the part of the foreign companies themselves has meant that foreign Internet companies have either struggled to make inroads in China or never entered the market to begin with.


Google's closure of Google.cn would leave the Internet in China—which has about 400 million users, more than any other country, and is adding about 250,000 more each day—almost entirely dominated by local companies.


That helps the Chinese government's efforts to control information, because it can more easily control local companies, but it means foreign participation in one of the fastest-growing parts of China's economy will be limited, and it leaves Chinese users increasingly isolated.


Google and Chinese authorities have been in talks about the extent to which the U.S. Internet giant will be able to operate a business in China if it follows through on its pledge two months ago to stop following government censorship requirements on its Chinese site, Google.cn. Those talks increasingly appear deadlocked, and Google's hopes for being able to operate Google.cn without filtering results—which were always thin—have all but disappeared.


On Friday, Minister of Industry and Information Technology Li Yizhong, asked by a reporter about Google's plan to stop filtering results, said doing so would be "irresponsible" and warned that the company would "have to bear the consequences" if it violates China's rules. His comments reinforced expectations that the authorities will force Google.cn to close if the company stops censoring it.


Google has about 36% of China's search revenue, according to Analysys International, a Beijing-based research firm, compared to 58% for local rival Baidu Inc. The U.S. company is one of the few foreign participants with solid market share.


A combination of strict government regulation, intense competition from Chinese companies and strategic mistakes on the part of the foreign companies themselves has meant that foreign Internet companies have either struggled to make inroads in China or never entered the market to begin with.


Google's closure of Google.cn would leave the Internet in China—which has about 400 million users, more than any other country, and is adding about 250,000 more each day—almost entirely dominated by local companies.


That helps the Chinese government's efforts to control information, because it can more easily control local companies, but it means foreign participation in one of the fastest-growing parts of China's economy will be limited, and it leaves Chinese users increasingly isolated.


Xiao Qiang, director of the China Internet Project at the University of California at Berkeley, says the closure of Google.cn could be seen as the beginning of a "Chinternet" that is increasingly distinct from the global Internet.


"The danger for the Chinese Internet scene is that it becomes a less competitive place" without Google's participation, says Jeremy Goldkorn, founder of Danwei.org, a Web site about the media and the Internet in China. Google has spurred competition in China by doing things differently from local rivals, like notifying users when search results were being censored, he says.


A Google departure from the Chinese market would also send a message to other foreign companies that China is "a very tough environment to run a business," Mr. Goldkorn says.


A tiny handful of other foreign-owned Internet companies have attained meaningful shares of markets in China, though none as large as Google's.


Amazon.com Inc.'s Chinese unit had 8% of the online business-to-consumer retail market in the fourth quarter, according to Analysys International. ELong Inc., a unit of Expedia Inc., had about 10% of China's online travel-booking market in the second quarter of last year. Microsoft Corp.'s MSN Messenger, which operates in China through a joint venture, has 4% of instant messaging users, compared to 77% for the QQ service from China's Tencent Holdings Ltd.


In part, the small role of foreigners is the result of competition from Chinese Internet companies that are often more adept at adapting products and services to Chinese tastes. EBay Inc. withdrew from the China market in 2006 after steadily losing market share to rival auction site Taobao.com, a unit of Alibaba Group, which gained popularity in part by offering its service free.


Yahoo Inc., one of the first foreign Internet companies to enter China, in 1999, handed over its China operations and $1 billion to Alibaba in 2005, after years of struggling in China, in exchange for a roughly 40% stake in the Chinese company.


But China's strict regulation also plays a role. The government bars foreign companies from directly owning Internet content licenses, for example, requiring them to use local partners. Complying with Chinese censorship is complicated and politically risky, exposing companies to criticism from rights advocates back home.


Some companies have decided not to enter the market at all: Facebook representatives came to China more than two years ago to assess the possibility of entering the market, according to people familiar with the situation. But the company never established a Chinese site and today, its international Web site is blocked in China.


Facebook rival MySpace, a unit of News Corp., which also owns The Wall Street Journal, has a stake in a Chinese version called MySpace China, but it lags behind Chinese rival Renren.com and others.


John Palfrey, a professor at Harvard Law School who studies the Internet, says Google's China situation has broader relevance for how other technology companies manage their overseas operations. "Because [the Chinese market] is the largest Internet market in the world, it is impossible for a large technology company to ignore," Mr. Palfrey says. "The outcome of this dispute is going to be enormously important for information technology companies elsewhere in the world operating in China."


Google, in its Jan. 12 announcement on China, cited Beijing's tightening limits on expression and a series of cyber attacks on it and other foreign companies as reasons for its decision to stop filtering Google.cn. Part of its negotiations with Chinese authorities is to determine whether that move would affect its other businesses in China, which include selling advertisements on other Chinese Web sites through its AdSense service, as well as selling ads for its international Web site.


The company has been drawing up detailed plans to handle various outcomes, including closing the Google.cn site, people familiar with the situation say. If that site is closed, Google could still offer Chinese-language search to Chinese users from offshore, as it did for several years before it started Google.cn in 2006. Users could also theoretically continue to use other Google services, such as Gmail, that are based outside China.


The government would have the ability to block access to those sites within China, but most analysts say Beijing wouldn't go that far because it would risk infuriating millions of users. But the government could make Google sites less appealing by slowing or disrupting access to them selectively.


Already, before Google's January announcement, authorities were blocking its YouTube and Blogger sites. Users in China can reach the main Google search service operated from the U.S., but searches from the country for certain terms—such as Falun Gong, the banned spiritual group—return error messages.


In some cases, the government's interference creates clear advantages for local rivals. English-language Wikipedia, for example, a user-generated encyclopedia, has been blocked on and off for several years in China, while the Chinese-language version has been blocked almost entirely. As a result, Chinese Wikipedia has just 300,000 articles, compared with about 3.2 million articles on the English version. Meanwhile, Baidu's China-based user-generated encyclopedia, which it launched in 2006, has 2.1 million articles.

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