Google stops censoring in China

NEW YORK (CNNMoney.com) -- In a long-awaited announcement, Google said Monday that it will stop censoring search services on google.cn, its Chinese search site.

Google (GOOG, Fortune 500) is now redirecting its Chinese users to its Hong Kong site, google.com.hk, which offers uncensored search results, according to Google's company blog. Google's search site for Chinese users is now hosted on servers that are in Hong Kong.

Until Monday, Google had been censoring certain search results on google.cn, in accordance with Chinese laws.

Now that Google is not hosting its search operations within mainland China, Google no longer needs to adhere to China's censorship laws. It is now up to the Chinese government to block access to the results it finds objectionable.

Currently, users are able to search for any term they like, including "controversial" subjects such as Tiananmen Square massacre," "Falun Gong" or "Dalai Lama," and all the results are being displayed, reports CNN's Beijing bureau. But when users try to click on one of those results, they are sent to pages that say "connection to server has been reconnected" or "that page is not available."

The arrangement is similar to how Chinese users have long been able to access Google's main search page, the uncensored google.com: The Chinese government allows access to some result pages and blocks pages it does not want its users to see.

"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 company said in its blog post.

The company said it "very much hopes" that the government of China respects its decision, though it is "well aware" that the Chinese authorities could block access to its services for users within the country's borders.

Shares of Google, which were up as much as 1% before the announcement, fell 0.4% Monday. Chinese rival Baidu (BIDU) fluctuated wildly after Google made its announcement, falling into negative territory before nearly rising back to its daily highs as it closed out the session up 2%.

Google will continue its wider business operations in China, including its ad sales business, though the search company conceded that the size of its sales workforce will be partially dependent on the ability of mainland Chinese users to access google.com.hk.

In addition to search, Google generates revenue from an ad sales business in China, its Android mobile phone operating system and its Chrome browser business. It also runs a host of Web services in China, including e-mail service Gmail.

Analysts widely agree with Google's assessment that discontinuing its search operations in China would have an "immaterial" effect on its revenue. Google.cn had tens of millions of users in China, but was unable to control more than about a third of China's search market as it struggled to beat the tough competition of entrenched search rivals such as Baidu.

Most of the approximately $300 million of revenue that Google took in from its China operations last year was from the company's other businesses, including its online advertising business, analysts say. China's online ad business is growing rapidly, and it's unlikely Google would want to exit that lucrative field.

Google has also said it sees a great deal of potential for its Chrome Web browser and operating system in China.

"If I were a Google shareholder, I would encourage Google not to censor but to pursue any business not related to censorship in China," said Whit Andrews, Google analyst at Gartner. "Does not censoring also mean they can't put Chrome OS on a netbook? I don't see why it would."

While there are roughly half a billion Internet users in China, there are even more mobile phone users. China is the fastest growing cell phone market, with about 700 million customers, according to the China National Bureau of Statistics. Google has begun to make a big push with its Android platform, as major wireless providers China Mobile and China Unicom have begun selling phones that run Android.

"For many in the emerging economies, people's first access to the Internet is on a mobile phone," said Fareena Sultan, marketing professor at Northeastern University. "If Google wants to play in that field, it would be hard pressed to leave the fastest-growing and largest market."

It's not just Google that is hesitant about leaving China. Despite the very public and embarrassing scuffle, the Chinese government also needs Google to stay. China wants to portray itself as an open society, or at least more open than the past, one in which foreign companies can come and do business.

Chinese businesses also would have a lot to lose if Google were to leave. Google is the world's leader in search advertising, and dropping Chinese businesses from its partner network crimp the global reach of those companies.

China's foreign ministry has stated that Google leaving the country would have no impact on the business environment for Western companies in China. But experts say that if Google were to leave China altogether, it could be very damaging for the country from a public relations standpoint.

"If Google leaves China altogether, it's definitely a lose-lose situation," said Sultan. "Both parties realize they need each other, so some sort of compromise will come from this in the long run."

Following a targeted cyber attack on Gmail accounts emanating from China in December, Google announced on Jan. 12 that it intended to stop censoring its content in China. At the time, Google said that it realized that commitment would likely mean it would have to shut down google.cn, and could mean the company would have to leave China altogether.

But it appears as though that won't happen. At least for now.

"There's freedom of speech and this and that, but there's also reality, and that reality is you can't just walk away from China," Sultan said.