Google in China

Google’s long running feud with the Chinese government over its unwillingness to censor its search results in line with demands has been highly publicised and somewhat controversial. The Chinese search market is growing as the country’s broadband infrastructure becomes more mature and so many search players are attempting to gain a foothold, with Google’s global brand proving to be one of the most successful until the first murmurings of conflict were detected.

Originally Google had taken issue with the Chinese authorities after several user accounts were deliberately hacked. It was also ordered to filter out search results via its Chinese site that were deemed to be unfit for public consumption and so it made a number of changes in order to partially comply with the Chinese Government’s requirements whilst partially circumventing others and further incurring the ire of the authorities. Back in March 2010, Google began to redirect any search requests made on its Chinese site to the equivalent site based in Hong Kong. Here the Chinese rules over censorship of search results did not apply and so it could freely give Chinese users access to the web addresses most relevant to their requests, no matter what they were looking for.

Google’s work-around was clever, but it was hardly covert and, as such, the authorities reiterated their demand that Google reinstate the website and enforce the mandatory filtering of search results. Google has a lot to lose in this situation, as the Chinese government threatened to withhold the renewal of its license to operate in the region until some kind of compromise was reached that was acceptable to both parties.

Google made another double-edged kowtow to the authorities after it reinstated the Chinese version of its site. However, instead of filtering search results, the website simply provided visitors with a link to the Google page that operates out of Hong Kong. This small partition between the sites was deemed as significant enough to comply with the requests of the authorities, but the question of the licence renewal was left up in the air, with Google’s sustained presence in China hanging by a thread of diplomacy.

In most cases, the question as to whether or not to filter the search results in China is academic, because the government has already imposed an embargo on many sites, meaning that even if users could view the links on Google, they would be unable to access the sites due to the nation’s enforced firewall. Of course Google is far more than just a search provider, as its services extend into most areas of the online world. This means that its exit from the Chinese market would leave a large number of users without much needed services and it has become a point of contention for many residents who fear that Google would leave a gap that no other provider could fill. It is important to note that Google is not actually China’s most visited search engine, with this honour going to Baidu. As a result, it is set to expand its maps and multimedia services to entrench its presence in other ways.

Although Google had feared that it would not receive a renewed license from the Chinese authorities, early in July its wish was granted and a typically minimalist statement from the search giant was accompanied by stoic silence from the government. Most observers took this to suggest that a compromise had been reached and analysts predicted that Google had won certain concessions whilst having to accept its losses in other areas. In this scenario it is said that both Google and the Chinese authorities had something to lose and that this was surely a driving force behind any negotiations. According to some sources there were actually no negotiations between the two firms in the run up to the renewal of the contract and Google might even have been taken aback by its renewal.

When Google announced that it might be pulling out of the Chinese market back in January 2010, there was a certain section of Chinese society that reacted despondently to this news. Some even went as far as laying bunches of flowers and lighting candles outside of Google’s Chinese headquarters, although the precise reasons behind this behaviour are unknown. It is believed that Google has the backing of the educated classes in China, with pressure placed on the authorities by leading figures in order to ensure that Google could return and operate in its intended manner without hindrance. The fact that so much of this information is based on speculation suggests the scale of the media blackout which has otherwise fallen over this particular chapter in Google’s history.

Google is now able to continue to operate in China until 2012, at which point it will have to go through the renewal process all over again. The authorities will also look into the suitability of the licence every 12 months and it is possible for Google’s right to operate in China to be revoked at any time, so it is still technically on thin ice. After Google announced that its licence had been renewed there was a media frenzy as publications attempted to work out who had come out of the situation looking victorious. Although it is unclear as to whether Google or the Chinese government got the short end of the stick, the clear winners were Google’s rivals, notably Baidu.

Interestingly recent statistics show that Google saw its share of the search market in China drop by six per cent over the second quarter of 2010, according to Chinese research group Analysis International. Over the same period its major rival Baidu saw a six per cent growth in its own share, which suggests that it was able to mop up those users who ditched Google while its presence in China was in a state of flux. Google now officially controls 24.2 per cent of the Chinese search market, although at the start of the year it held a much healthier 35.6 per cent. Its losses have allowed Baidu to grow from a 58.4 per cent stake up to a staggering 70 per cent figure, which could worry Google’s American paymasters. This is because advertisers that had previously used for publicity jumped ship to Baidu, which means that not only was its market share dropped but the revenue generated by advertisements moved into Baidu’s coffers.

Baidu has taken the battle for Chinese dominance to Google’s back yard in the last few weeks after its CEO visited Google’s native California in order to seek out the cream of technology talent to take back with him in order to build Baidu’s international reputation. This is a year in which Google has seen the value of its shares fall, whilst Baidu’s are up by 82 per cent thanks to its continued growth in the world’s largest country. Baidu is a younger, more sprightly firm than Google, as it went public only five years ago and could well be following in the footsteps of its American counterpart as it strives for global domination. The news that Google would be staying in China did have a small impact on the market and the US giant saw a 2.4 per cent increase in the value of its shares immediately after the announcement was made, which only partly offsets the 25 per cent decrease that has plagued it in the first half of this year.

In the most recent developments, Google has announced that it will be shutting down two of its Chinese platforms due to lack of custom. The site and its technical support service are coming to an end, which could be the first indications that Google is feeling the pinch after losing users to rivals, although this might also be interpreted as a sensible move that will help it to focus its efforts on promoting the core of its search business in China.

Despite the recent troubles, most experts are convinced that Google’s falling market share is temporary, as its global brand image is strong and it has vast resources available to it. Google’s Chinese search engine is expected to regain users now that the Chinese authorities have settled the dispute, although the clandestine manner of its creation and the lack of general transparency can hardly be deemed as a victory for free speech and expression, which is surely what Google would have sought. Google has modelled itself as synonymous with the freedom of information in the west and this stance is clearly at odds with the national firewall and extensive online censorship which is imposed on Chinese users by the government. But when business gets this big, it’s easy to see how ideologies can be overlooked.

At present, the penetration of internet connectivity in China is at some 30 per cent, but by 2015 the government plans to push this up to 50 per cent. This will drive demand for IT & computing courses as the population familiarises itself with internet technology. Given the vast population of the country, this represents a significant portion of the market over which Google could potentially hold sway if it manages to retain its licence to operate. If Google ever butts heads with the Chinese authorities again, it could easily find its position destabilised and rival search providers could again gain momentum and market share.

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