SCENARIOS-What’s next for Google’s operations in China?

(For full coverage of U.S.-China ties, click [ID:nCHINA])

By Melanie Lee

SHANGHAI, March 19 (BestGrowthStock) – Two months after Google Inc (Read more about Google Stock Analysis)
(GOOG.O: ) shook the world with its threat to leave China on
censorship and hacking concerns, there are increasing signs
that an exit is imminent as the two sides refuse to back
down.[ID:nTOE62I006]

Google said in January a key condition to staying on in
China, the world’s largest Internet market by users, would be
an end to rules that require it to self-censor results. Beijing
has repeatedly thrown cold water on any such expectation,
maintaining that all Internet firms need to abide by local
laws.

Following are the possible paths the world’s largest search
company could take, and the possible reactions from Beijing:

GOOGLE PARTIALLY WITHDRAWS

In addition to its Chinese search site, Google.cn, Google
has two research and development centres, hundreds of sales and
customer service staff and engineers working on its Android
mobile operating system and other initiatives in China.

Google could well decide to pull the plug on Google.cn, but
leave its other China-based operations intact.

The manner in which the company executes such a pull-out
would also be of importance to its employees and reputation.

If Google goes out with a bang by halting censorship of its
China site before shutting it down, hundreds of local employees
could be at risk for working for a company that broke local
laws.

But given the very public nature of its initial threat,
many believe such an underhanded withdrawal is unlikely.

By being up-front about shutting its China search site,
Google — whose motto is “Don’t do evil” — could generate
positive publicity from sympathetic quarters in the West,
including politicians, media and human rights groups.

GOOGLE FULLY WITHDRAWS

Google could decide that China isn’t worth the trouble and
completely pull out, including all its R&D and Android support
operations.

Such a move would put hundreds more out of work, and could
jeopardize firms like Dell (DELL.O: ) and Lenovo (0992.HK: ) that
were banking on Android-based phones as a major part of their
push into the China cellular market.

Independent software application developers who were
counting on Android phones to carry their programs could also
find themselves out in the cold.

China warned last week that it would be “unfriendly and
irresponsible” for Google to suddenly stop filtering searches,
and added the search giant would have to bear whatever
consequences might follow. [ID:nTOE62B07M]

Some say that such words could be a veiled warning from
Beijing that Google would not be welcome in China if it leaves
the local search market, giving the U.S. search giant no other
choice than to pull out entirely.

GOOGLE STAYS IN CHINA

Google could cut a deal with Beijing and work out a plan to
stay in China under a face-saving compromise.

Many consider this outcome unlikely as Google has stated
that freedom from censorship is key to its staying. A condition
Beijing is unlikely to bow to given its insistence on direct or
indirect control of all media in the country.

In giving in to Google, Beijing would also set a dangerous
precedent, possibly prompting other popular Web site operators
such as Baidu (BIDU.O: ) and Sina (SINA.O: ) to request similar
exemption from self-censorship laws.

Thus the probability of regulators bending rules just for
Google is highly unlikely, meaning Google would still have to
self-censor at some level if it wanted to stay.

Stock Market Analysis

(Reporting by Melanie Lee; editing by Doug Young and Sanjeev
Miglani)

SCENARIOS-What’s next for Google’s operations in China?