BEIJING (Reuters) - China defended its extensive censorship and brushed aside hacking claims on Thursday, telling companies not to buck state control of the Internet after U.S. search giant Google threatened to quit the country.
The Google dispute could stoke tensions between China and the United States, already at odds over the value of the yuan currency, trade quarrels, U.S. arms sales to Taiwan and climate change policy. It threw a spotlight on hacking and the Internet controls that Google says have stifled its business in China.
Google's challenge to Beijing came as foreign businesses have voiced growing frustration at China's business climate, even as Chinese economic growth outpaces the rest of the world.
Google, the world's top search engine, said it may shut its Chinese-language google.cn website and offices in China after a cyber-attack originating from China that also targeted other firms and human rights campaigners using its Gmail service.
The company, which has struggled to compete with local market leader Baidu, said it would discuss with the Chinese government ways to offer an unfiltered search engine, or pull out.
But Minister Wang Chen of China's State Council Information Office said Internet companies should help the one-party government steer the fast-changing society, which now has 360 million Internet users, more than any other country.
Wang did not mention Google, but his comments suggested little room for compromise in the feud over Internet freedom.
"Our country is at a crucial stage of reform and development, and this is a period of marked social conflicts," Wang said in an interview that appeared on the Information Office's website. His comments largely echoed a speech he made in November.
"Properly guiding Internet opinion is a major measure for protecting Internet information security."
On Thursday, the Information Office also named five Chinese websites it said had not done enough to stamp out content banned as crude or pornographic. "Step up the clean-up," it demanded on a statement on its website.
Online pornography, hacking, fraud and "rumors" were menaces to Chinese society, Wang said, adding that the government and Internet media both have a responsibility to "guide" opinion.
The Information Office is an arm of China's propaganda system, and Wang's comments were Beijing's first substantial comment on Internet policy after Google threatened to retreat from the world's third-biggest economy.
About a dozen Chinese fans of Google held an impromptu candlelight vigil at the company's Beijing headquarters late on Wednesday. Others had brought bouquets of roses and lilies shortly after Google's decision was announced.
He Ye, a woman at the vigil, said finding alternative news would become more difficult if Google pulled out of China.
Later on Thursday, the Foreign Ministry deflected Google's allegation that it and dozens of other foreign companies were the targets of sophisticated hacking from within the country.
"China welcomes international Internet businesses developing services in China according to the law," Ministry spokeswoman Jiang Yu said when asked to comment on Google. "Chinese law proscribes any form of hacking activity.
Google trails homegrown rival Baidu in China's $1 billion a year search market, with 30 percent market share to Baidu's 61 percent, according to Analysys International. Baidu shares rose after the Google announcement.
Jiang repeatedly said it was up to other "relevant departments" to answer questions about the hacking, and she avoided commenting on the U.S. Secretary of State Hillary Clinton's criticisms of Chinese online controls.
The dispute drew an outpouring of nationalistic fervor from China's online community, with some Internet users cheering it as a victory for the Chinese.
A comment on the website of a Chinese-language tabloid, the Global Times, said Google was threatening to quit China because it had been beaten by Baidu.
"Our largest Chinese search engine has thoroughly defeated the American leader, and we can again rejoice in the global arena," said the comment. "It also shows that nowhere can we not match up to the United States."
Cyber-experts said more than 30 firms were victims of attacks that used tailored emails to deliver malicious software exploiting vulnerabilities in the Adobe Acrobat and Adobe Reader software.
U.S. Commerce Secretary Gary Locke urged China on Wednesday to ensure a "secure" commercial environment for U.S. companies.
"The recent cyber intrusion that Google attributes to China is troubling to the U.S. government and American companies doing business in China," Locke said in a statement.
Google came under pressure from the Chinese government last year and was ordered to change the way it allows searches.
It filters many topics deemed sensitive in China. Most of those filters were still in place on Thursday, although controls over some searches, including the June 4, 1989 crackdown on democracy protesters, appear to have been loosened.
Additional reporting by Jimmy Guan, Ben Blanchard and Benjamin Kang Lim in Beijing and Melanie Lee in Shanghai; Editing by Benjamin Kang Lim and Paul Tait