In a bid to maintain its presence in mainland China, Google Inc. is changing how Internet users there access its search engine after the Chinese government objected to its strategy of redirecting them to an uncensored site in Hong Kong.
Google said China had called the strategy “unacceptable” and had threatened to revoke its license. As a concession, Google said it would stop automatically redirecting users, instead requiring them to click on a link that takes them to the Hong Kong site.
The additional step is designed to help Google renew its license to offer online content in China. The license, which expires Wednesday, extends through 2012 but has to be renewed each year. Google expects a decision within weeks, a person familiar with the situation said.
“This new approach is consistent with our commitment not to self-censor and, we believe, with local law,” David Drummond, Google’s chief legal officer, wrote in a blog post.
It remains unclear whether the Chinese government will accept what one analyst called a “peace offering.” A Chinese Foreign Ministry spokesman said at a regular press briefing Tuesday that he had not seen Google’s statement and had no specific comment.
“The Chinese government encourages foreign enterprises to operate in China according to the law, and we also administer the Internet according to the law,” said Wang Lijian, a spokesman for the Ministry of Industry and Information Technology.
Google has attempted to strike an uneasy balance with China, tempering its ambitions to grow in the world’s largest Internet market with its reluctance to bow to the government’s mandate to censor search results. The result has been a shrinking share of the search market in China.
At the same time, China is facing rising trade tensions as the West pressures the Asian superpower to strengthen its exchange rate.
“The Chinese have to put it in the context of the bigger trade problems. They may not want to start a fight over this,” said James Lewis, a technology expert with the Center for Strategic and International Studies. “They will probably look for other ways to squeeze Google.”
But the move, which comes three months after Google said it would redirect mainland China users to its uncensored search engine in Hong Kong, will not insulate the company over the long term as the Chinese government continues to press for greater control over its citizens’ access to political and other sensitive Internet content, Lewis said.
Chinese regulators clamp down on mainland Internet sites that link to foreign sites. Hong Kong is considered a foreign country under Chinese law, so it escapes censorship restrictions. Though Google’s Hong Kong search engine is not filtered, the Chinese government blocks access to certain search results for users in mainland China.
The shift does not affect sophisticated Internet users who access Google through offshore sites. But it does make it harder for Google to compete in the local Internet market.
Its larger Chinese rival, Baidu Inc., which plans to recruit American software engineers for its operations in a bid to raise its profile overseas, has profited from Google’s retreat. Google’s market share declined to 31% from 35.6% in the first quarter, according to Analysys International.
“This is very positive for Baidu,” Piper Jaffray analyst Gene Munster said. “Baidu basically has the strongest backup in the Chinese government: It is effectively becoming a government-enforced monopoly in the fastest-growing segment of Internet advertising.”
Google has tried to weigh its mission of providing open access to information with the local sensibilities and laws of the countries in which it operates. That balancing act has produced concessions in Thailand, India and even in Western European countries. But its high-profile standoff with China has plunged the Internet giant into uncharted territory. The stakes are high: Google risks being shut out of one of the most potentially lucrative Internet markets.
Research firm EMarketer estimates that there are 518 million Internet users in China, about 38.9% of the population. By 2013, the number of Internet users in China is expected to reach 900 million.
That points to a market with huge potential: Spending on online advertising in China is expected to reach $3.8 billion this year, up 36% from last year, EMarketer said. A report by J.P. Morgan in January estimated that search advertising spending would reach $1.45 billion in China this year.