With negotiations over censorship at an impasse, Google Inc. shut down its search engine operation in China on Monday and redirected users to uncensored results -- a move certain to anger the Chinese government and jeopardize Google's future in the world's most populous country.
In taking the extraordinary action, Google said it was making good on a promise it made two months ago, when it said it would not self-censor the site as demanded by Chinese officials. At the time, Google also complained that it had been a victim of a sophisticated cyber attack originating from China.
"Figuring out how to make good on our promise to stop censoring search on Google.cn has been hard," David Drummond, Google's chief legal officer, wrote in a blog post. "We want as many people in the world as possible to have access to our services, including users in mainland China, yet the Chinese government has been crystal clear throughout our discussions that self-censorship is a non-negotiable legal requirement."
The response from China was swift.
"Google has violated its written promise it made when entering the Chinese market by stopping filtering its searching service and blaming China in insinuation for alleged hacker attacks," said an unnamed government leader quoted by New China News Agency, China's official news service.
Google said it would try to remain a presence in China by directing search engine requests by Chinese users to its uncensored Hong Kong service. Although it remains to be seen whether that strategy will work, experts say one thing is certain: It will further strain the company's relations with China.
"It shows a protest against the Chinese government's wishes," UCLA business professor Christopher Tang said. "Google has burned its bridges. It has made the Chinese government lose face."
As a result of Google's decision Monday to stop self-censoring in China and reroute to Hong Kong, users were able to get access to many more results when searching on sensitive topics such as the Tiananmen Square crackdown, Taiwanese independence and the Dalai Lama. But the links provided on the Hong Kong service were successfully blocked by China's censorship machinery, known as the Great Firewall, and could not be opened.
If the standoff persists, Google will lose advertising revenue and the chance to further develop its other businesses, including mobile applications, in a country with nearly 400 million Web users.
"This is a huge hit business-wise, no question," said Rebecca MacKinnon, a visiting fellow at Princeton and expert on Chinese censorship.
The shock waves from the decision could also extend from Silicon Valley, where Google in based, to Washington, D.C., some think.
"This will mean more clouds for U.S.-China relations," said Cheng Li, a senior fellow at the Brookings Institution who focuses on China.
Still, some downplayed the significance of Google's retreat.
"The biggest risk here is overreaction, to pretend like this is a major, watershed event that is going to dramatically shake up the way the business and technology sectors relate to the Chinese," UC Berkeley political science professor Steven Weber said. "I suspect it's a ripple in the wave."
In his blog post, Drummond said Google's decision to reroute its search engine to Hong Kong, which, although part of China, operates as a separate government and economy, complies with Chinese law. It was not immediately clear whether the Chinese government would seek to block that redirection.
Foreign companies rarely publicly challenge China's policies or threaten to scale back or leave a market considered so crucial, making Google's pullout all the more unsettling for foreign businesses there, especially U.S. companies.
Concern is rising that conditions for U.S. businesses in China are souring, with policies favoring local companies and risks of cyber espionage mounting. Chinese officials deny that the business climate has changed.
Analysts say the massive online market is almost entirely dominated by Chinese players, which are more easily controlled by government officials. The Chinese government encourages Internet use for education and business, but bans content deemed subversive or pornographic. Popular international websites such as Facebook, Twitter and YouTube are blocked in China.
Heated rhetoric from government officials could signal that China plans to further restrict Internet access, isolating Chinese users from the global Internet and forcing other companies to decide whether to continue to operate in a country where government regulation and local competition have stymied so many foreign technology companies.
"As the Chinese government keeps exercising this new assertiveness that it has, is that a business risk these companies will be willing to bear?" said Carolyn Bartholomew, vice chairman of the U.S.-China Economic and Security Review Commission.
China may be one of the biggest challenges Google has faced. The technology powerhouse, which has 600 employees and a significant research and development facility there, wants to continue operations to boost its mobile phone and advertising businesses. Closing its search engine gives the advantage to local rival Baidu Inc., which operates the most popular search engine in China and filters search results.
The withdrawal has limited, current financial repercussions for Google, which had struggled to gain market share in China, said Jefferies & Co. analyst Youssef Squali. He estimated that Google.cn accounted for $250 million to $350 million, or 1% to 2% of the company's revenue. But leaving China, the second-largest traffic-generating country for Google behind the United States, presents a long-range strategic setback, he said.
University of Virginia professor Siva Vaidhyanathan, who is writing a book about the Internet giant, said, "It's a remarkably bold move because Google is essentially stepping out of the competition for attention in the largest market in the world."
Secretary of State Hillary Rodham Clinton said in January that China's strict control of the Internet could harm economic development. She also said the perpetrators of the cyber attack on Google should face consequences. The U.S. and China were already at odds over trade and foreign policy issues such as new arms sales to Taiwan and President Obama's meeting with the Dalai Lama.
China, looking to avoid a populist backlash, is portraying the dispute with Google as "information imperialism." Chinese users brought flowers to Google's Chinese headquarters after the Jan. 12 announcement to express their dismay that Google would leave China.
Princeton's MacKinnon wrote on her blog that the "Google China incident," as many Chinese call it, had heightened awareness of the extent of Internet censorship.
"It has sparked a lot of debate and soul searching about the extent to which their government is causing them to be isolated from the rest of the world," MacKinnon wrote.
Times staff writer David Sarno in Los Angeles contributed to this report.