WRAPUP 4-Google gets nod from China to keep search page

* Move comes as tensions between China and U.S. ease

* Google shares up 2.4 percent; Baidu down 1.6 percent

* Analysts say Google’s path in China is still rocky
(Adds analyst comment, details on politics, additional byline;
updates shares)

By Melanie Lee and Jennifer Saba

SHANGHAI/NEW YORK, July 9 (BestGrowthStock) – China gave Google Inc (Read more about Google Stock Analysis)
(GOOG.O: ) approval to keep operating its Chinese search page,
resolving a months-long censorship dispute that had threatened
its future in the world’s top Internet market.

The move, announced by Google on Friday, potentially
removes another thorn in warming U.S.-China ties and reflects
Beijing’s desire to be seen as friendly to major foreign
companies in spite of ideological differences, analysts say.

Shares of Google rose 2.4 percent as the news erased some
concerns that China would eject the company for taking a hard
line against Web censorship. But analysts said Google’s
position in China remains fragile and that the country likely
will account for a fraction of Google’s revenue for some time.

“It’s good for Google that they still have some presence.
But they’re clearly in a more compromised competitive
position,” said Ryan Jacob of the Jacob Internet fund, which
holds Google shares.

“Google is going to have a very difficult time gaining
share, and will probably lose share over time.”

Google had embarrassed China in January by drawing global
attention to Beijing’s Web censorship practices, a function of
the government’s belief that keeping a tight grip on
information helps it maintain control. The Internet company
also accused Chinese hackers of orchestrating a sophisticated
cyber attack on Google and other major U.S. companies.

Google had declared it was no longer willing to offer
censored search results, triggering a row that exacerbated
tensions between Washington and Beijing, which also sparred
over China’s currency, U.S. arms sales to Taiwan, and Tibet.

But tensions have subsided in past months, and the Google
deal could further help China’s ties with Washington, which has
forcefully argued against Internet censorship and demanded that
Beijing investigate and explain the alleged cyber attacks.

Analysts, however, said that while the United States would
likely welcome the Google agreement, the deeper divisions over
Internet policy and hacking would likely continue to simmer.
For a Q&A on why China is important to Google: [ID:nTOE66803X]
For BREAKINGVIEWS commentary: [ID:nLDE6681KB]
For a graphic on Google in China: http://r.reuters.com/maq46m
For a Reuters Insider clip on Google shares:


Google said on Friday China has renewed its webpage
license, which means it can continue to run the Chinese
language search site google.cn. There was no immediate comment
from the Chinese government.

The news comes after Google offered Beijing a face-saving
compromise last week: it stopped automatically rerouting
google.cn to its uncensored Hong Kong search site. Instead,
visitors to google.cn have to click once to go to the Hong Kong

Analysts estimate Google’s revenue in China at $300 million
to $600 million, just a slice of its $24 billion annual
revenue. It has around a 30 percent share of China’s 7 billion
yuan ($1 billion) search market, which local rival Baidu Inc
(BIDU.O: ) dominates. Baidu shares, which have soared about 75
percent since Google’s problems emerged, fell 1.6 percent.

Elinor Leung, analyst with CLSA in Hong Kong, expects
traffic from Chinese visitors to continue to drop for Google
and for advertisers to turn to local choices like Baidu.

“This doesn’t really change anything about Google’s
position in China. The redirection to its Hong Kong site is
ongoing so it is the same problem as before,” said Leung.

Google’s Chinese headaches come at a time when investors
are concerned that the company’s growth rate is slowing. Google
faces a plethora of regulatory inquiries and is spending
heavily on new but unproven businesses, such as its Android
mobile operating system. Its stock is hovering at its lowest
level since September 2009, and has dived 26 percent in 2010.

“Google has been a company which people have invested in
because they expected the company to outstrip expectations —
and it’s not that company anymore,” said Hamilton Faber, an
analyst at Atlantic Equities. Its “growth outlook is certainly
slowing from where we were a few years back. The company seems
to be back on the path of heavy levels of investment. We are
back into a situation where margins are declining.”


China offers Google a huge growth arena and the world’s No.
3 economy has made no bones about its desire to attract foreign
investment and technology.

With nearly 400 million users, China only has an Internet
penetration rate of 25 percent with huge market opportunities
in search, e-commerce and online gaming, analysts say.

But despite Beijing’s eagerness to project a pro-foreign
investment stance, executives from multinational companies have
long complained about Chinese policies that encourage
home-grown corporations over foreign ones. General Electric Co
(GE.N: ) CEO Jeff Immelt was cited by the Financial Times as
saying in July that he felt Beijing was growing increasingly
protectionist, and suggested his conglomerate was eyeing rosier
prospects elsewhere. [ID:nN02197666]

“China doesn’t necessarily want Google to exit the country.
China just wants to exert its control over Google in its
country,” said Colin Gillis, BGC Financial’s research

He warned that disputes between Google and China over
censorship can still flare up, even after the license renewal.

“It’s going to continue to be a distraction for management.
It may look like a positive for now, but it doesn’t change the
fact that Google is still offering uncensored results. It’s
going to continue to be a drag on management’s focus,” he said.
“In our opinion, there is no chance for Google to earn profits
in China in the near term.”
(Additional reporting by Alexei Oreskovic, Andrew Quinn, Jason
Subler and Jonathan Thatcher; Writing by Edwin Chan; Editing by
Tiffany Wu, Robert MacMillan and Richard Chang)

WRAPUP 4-Google gets nod from China to keep search page