Google's New China Strategy: Your Questions Answered

Will Chinese View Google's Latest Move as a Compromise or a Slight?

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HONG KONG ( -- Google's dysfunctional relationship with the Chinese government took a new turn on Monday when the U.S. search giant posted an announcement on its corporate blog. The post by David Drummond, Google's senior VP-corporate development and chief legal officer, details changes in the way Chinese netizens can conduct searches on Google's Chinese-language site.

Google hopes a 'landing page' that redirects users to the Hong Kong site will appease its government detractors.
Google hopes a 'landing page' that redirects users to the Hong Kong site will appease its government detractors.
Google has taken a tough stance against censorship globally and China has been a tough market for most foreign internet companies. Google in particular has bristled at heavy-handed government tactics used to censor and control the internet since it launched its Chinese site four years ago. Google toughened its stance in January 2010, after it discovered a cyber attack on its network infrastructure it said came from within China.

The timing of Mr. Drummond's post is messy. Google's Internet Content Provider license is up for renewal on June 30. It has already submitted its application for a new license but another public showdown with China's censors could easily lead to a total closure of Google's web business in the world's largest internet market.

Here, Ad Age answers your questions about Google's future in China.

I thought Google pulled out of China. What's going on?

In March, Google stopped censoring search results in China by utilizing a loophole that lets local web users continue using Google's Chinese-language search site and allows Google to live up to its "do no harm" policy without breaking China's laws.

For the past three months, Google has automatically redirected users of, which is based in mainland China, to its Hong Kong-based unfiltered site, Control of Hong Kong was handed back to China from the U.K. on July 1, 1997, but the territory has retained Western-style civil liberties, including a free press. Website operators there, including Google, do not censor search results, although government filters still block politically sensitive results for searches initiated inside the mainland.

Mr. Drummond said Monday the Chinese government calls the redirect "unacceptable." So Google has revived with a twist. Netizens see what Google calls a "landing page" that redirects users to the Hong Kong site rather than taking them to that site automatically. Google hopes this extra step will appease its government detractors.

Will the government accept Google's redirect strategy?

Chinese authorities haven't commented on Google's post, but they probably see very little change in the redirect strategy. They have made it clear in the past that they are angry at the way Google has publicly embarrassed China over the past six months and probably are not inclined to grant favors to a company that doesn't put China's best face forward. Also, controlling the internet is about maintaining social harmony, the government's paramount concern.

So there is a real danger that Google's actions -- and its brash attitude -- have caused irreparable damage to its business in China. At the same time, Google has been negotiating with them over the past few months. The redirect decision could be a compromise worked out behind closed doors.

Can Google afford to be shut out of China?

Analysts believe China contributes less than 2% of Google's net revenue, so the company's bottom line and share value are unlikely to be affected. Last January, JPMorgan Chase & Co. expected China to earn $600 million in annual sales this year in China. Google's share of search revenue there dropped to about 31% from 35.6% in the previous quarter, according to Analysys International, a research firm in Beijing. The long-time winner in China's search market, Baidu, has soaked up much of Google's lost market share.

China's internet population has reached 404 million this month, up from 384 million at the end of 2009, and the number of people accessing the internet with mobile phones there has reached 233 million. Companies in every category are following them online. Advertisers spent nearly $937 million in the first quarter of 2010, an 85.4% year-on-year increase according to iResearch, a local market research firm. Every major internet player, including Google, should take a long-term view towards China.

Are the issues with Google's search site affecting its other growing businesses such as its mobile operating system Android, Google Maps, its display business, etc.?

Android is still growing. Even Chinese firms such as China Mobile, China Unicom and Lenovo Group are developing smartphones based on Google's mobile operating system.

But Google has seen a drop in ad revenue, and earlier this month the government changed its licensing rules for online mapping services, making it nearly impossible for foreign companies like Google to meet the new requirements.

This is significant, says Chinese internet analyst Paul Denlinger, because Google Maps is the single most popular Google application in China. In addition, the new rules mean many iPhone and Android mobile phone users will find that their location-aware apps don't work well in China.

Are Google's problems dealing with the Chinese government a sign that China is becoming a tougher market for foreign companies?

China's government has big issues to worry about -- unemployment, natural disasters, the effects of rapid urbanization and a growing divide between rich and poor. Chinese President Hu Jintao worries about putting food on the table for over a billion people, not whether foreigners feel slighted.

But the country and its people realize that, economically and politically, they hold a great deal of power, and they are starting to use that strength. China has made no secret of its desire to help local companies compete at home and overseas, so foreign firms entering China today may find it more difficult to start and grow businesses there.

Executives at companies such as Unilever, General Motors and Coca-Cola Co., all major investors in China, remain bullish about the country, confident in their products, sales strategies and government relations. As one senior executive at Shanghai GM recently told Ad Age, "China has never been easy."

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