Now that Google China says 'no' to censoring, who wins: Google or China?

Google China announced Monday that it will stop censoring search results. For both Google and China, the risks are big.

By , Correspondent

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    A worker cleans the sign in front of Google China headquarters in Beijing on Monday. Google Inc. announced it will redirect its Chinese search engine to Hong Kong to allow searches without censoring. For China and the Internet search giant, the stakes are big.
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On Monday, the world's largest Internet company, Google, announced it was pulling back from the world's largest Internet market, China.

The Mountain View, Calif., company said it would stop censoring its search services – Google Search, Google News, and Google Images – on its Google China site by redirecting search inquiries to its site based in Hong Kong.

While China has not yet responded, it's possible – even probable – that the government will block access to the search engine in mainland China.

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Although the financial impact of this move is small – consensus among analysts is that China makes up less than 2 percent of Google's revenues – the symbolism looms large.

For Google, the move can be seen as a courageous and principled stand against state censorship. But in business terms, it might also come to be seen as a strategic faux pas, an ill-advised retreat from a market with huge potential.

The search engine market in China was a $1 billion dollar industry in 2009, says Aaron Kessler, senior analyst at Kaufman Bros., an investment bank focusing on the technology industry. But with 1.3 billion Chinese and only approximately 25 to 30 percent of them on the the Internet, says Mr. Kessler, the potential is big. In the next three to five years, China could see that share move toward 35 or 40 percent, he adds.

For China, the financial stakes are minuscule. Indeed, having Chinese search companies like Baidu taking over Google's 30 percent share of the market could be a plus for the domestic market.

But the symbolic stakes are huge. Up to now, China has largely avoided the negative publicity that the Russian government endured as it began meddling in commercial affairs and prosecuting tycoons who opposed Moscow's policies. Those moves chilled the West's enthusiasm for investing in Russia.

Will the dispute with Google mark a similar turning point for China?

The market has already assessed the financial impact on Google, Mr. Kessler says. Its stock dropped about 3.5 percent over the last week as word surfaced that Google might withdraw from China.

For China, it could be months or years before the true cost of Monday's move is known.

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