Google tweaks China site in bid to keep license

A security guard (L) and an employee walk past Google's logo outside Google China headquarters building in Beijing March 24, 2010.

SHANGHAI/BEIJING (Reuters) - Google Inc is tweaking its China website in a last-ditch effort to save its search business in the world's largest Internet market after butting heads with Beijing over Web censorship.

The google.cn search site will stop automatically redirecting users to Google's uncensored search portal in Hong Kong -- instead, visitors will be required to click a link to access the Hong Kong site, Google said on Tuesday.

The move comes ahead of a Wednesday deadline for China to renew Google's operating license. Google said Beijing had made it clear it was unhappy with the company's three-month old system of re-routing Chinese Web surfers to google.com.hk.

"It's clear from conversations we have had with Chinese government officials that they find the redirect unacceptable, and that if we continue redirecting users, our Internet Content Provider license will not be renewed," Google Chief Legal Officer David Drummond wrote on the company's corporate blog.

"Without an ICP license, we can't operate a commercial website like Google.cn so Google would effectively go dark in China," he wrote.

There was no immediate comment from China. Google shares were down 3 percent by early afternoon trading, in line with the Nasdaq stock market's fall.

The website tweak is Google's latest attempt to strike a delicate balance between standing up to China's policy of Internet censorship while maintaining a presence in a market considered key to its future growth.

Google's shares have fallen roughly 23 percent since the company announced its intention in January to stop censoring search results in China.

"It seems like investors have already taken China out of the valuation of the company. I don't think there's much more incrementally negative for the stock," said UBS analyst Brian Pitz.

CHINA SILENT

Google, which battles Baidu for China's 380 million Internet users, said in January it might quit the country over censorship and after it was hit by a hacking attack that it said came from within China.

But after keeping its promise to end self-censorship by automatically rerouting users to its Hong Kong site, Google now seems reluctant to abandon the Chinese market entirely.

"China, with its business potential, is a hard market to give up," said Cao Jun Bo, analyst at Beijing-based technology research company iResearch.

It is unlikely Google would have moved without some blessing from Beijing, and there certainly would have been negotiations about the change, said Cao.

China's foreign ministry on Tuesday declined to comment on Google's decision to end automatic rerouting, but Drummond said he hoped it would be acceptable to the Chinese government.

A Google spokeswoman declined to comment further on the details of negotiations with Beijing.

Google's challenge to China's online policies has provided a new source of tension to Sino-US relations. The State Department has backed Google and demanded that China explain the alleged hacking attacks.

The new google.cn page has an image of the Google logo and a non-functioning search box. A short message says, "We have already moved to google.com.hk" and "Please save our new website." Clicking on much of the page redirects users.

If accessed from China, the Hong Kong search engine does not offer unfettered access to information the government wants blocked as domestic firewalls prevent connections to many websites that Beijing objects to.

The Google.hk.com site is also periodically unavailable from mainland China, and searches can be unstable.

LUCRATIVE MARKET

Analysts estimate Google's China business is a modest 1 percent to 2 percent of its $6.5 billion in annual net profit, but the country had been considered a major long-term growth opportunity.

Besides Web search, Google has other operations in China, such as the Android mobile operating system.

China Mobile has released smartphones into the China market using Android, and Credit Suisse analyst Wallace Cheung expects Android to one day become the most popular mobile operating system in China.

Google, which runs two research centers and has several hundred employees in China, may already have paid a price in lost talent for its spat with the Chinese government.

It has seen an exodus of executives from its China operations, as well as from partners under its advertising AdSense program.

"It seems clear they want to have some engagement or business in China. But they are at a point right now where an increasing number of partners and AdSense partners are leaving Google," said Mark Natkin, managing director of Marbridge Consulting.

Natkin said at least three other licenses for Google business units in China are due for renewal in June.

(Reporting by Melanie Lee and Emma Graham-Harrison; Additional reporting by Michael Wei in Beijing and Alexei Oreskovic in San Francisco; Editing by Anshuman Daga and Robert MacMillan.)