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Google case shows difficulties of China presence: analysts

world Updated: Jan 13, 2010 12:33 IST

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Google's threat to pull out of China is evidence of the difficulties faced by foreign firms operating in the land of the "Great Firewall", and could signal a tougher government line, analysts say.

The announcement that the US Internet giant might forego operations in the country with the world's largest online population might just be good business, as it has never matched up to its Chinese rivals on the mainland, they say.

"This is a very politically charged environment," Duncan Clark, an analyst at Beijing-based high-tech consultancy BDA, told AFP.

"Multinationals have been complaining about 'Buy China' policies, unfair restrictions and hacking... and this is going to be very damaging if there isn't a solution."

Google has said that China-based cyber spies struck the Internet giant and at least 20 other unidentified firms in an apparent bid to hack into the email accounts of activists around the world.

The online espionage has led Google to reconsider its business operations in China and it said it will no longer filter Internet search engine results in the Asian country.

On Wednesday, searches for sensitive subjects like the Dalai Lama and Tiananmen revealed photos and results that are often blocked on, indicating Google may have already stopped filtering.

Requests for comment from the Chinese government were not immediately answered.

Google's decision to go public with its threat to exit the Chinese market suggested the authorities had closed the door to further talks, highlighting the government's increasing hardline towards Western companies.

"There's a feeling that China is emboldened and that they don't need to have the same sort of dialogue (as before)," Clark said.

"This is the mismatch -- people here think no one can do without China and I think now some companies are thinking no one can deal with China."

Officials at Microsoft and Yahoo! did not immediately respond to requests for comment on Google's announcement.

Beijing tightly polices cyberspace, employing tens of thousands of people to monitor online postings, chatrooms and blogs as well as relying on companies including Google and Yahoo!, to prevent web users accessing information about subjects deemed politically sensitive such as Tibet and Falungong.

To get around the "Great Firewall of China", savvy web users use proxy servers or VPNs (virtual private networks) to access blocked websites.

They also use abbreviations, homonyms and symbolic words such as "harmonise" instead of "censoring" and referring to the Communist Party as "D".

Elinor Leung, an analyst with Credit Lyonnais Securities Asia in Hong Kong, said the departure of Google China president Kai-Fu Lee in September may have contributed to the deterioration in the firm's relations with Beijing.

She said Lee had been able to "smooth ties with the government" after Beijing accused Google of illegally spreading pornographic content as part of a wider crack down on what authorities say is unhealthy Internet content.

On the commercial side, Google has struggled to take market share from its rival Baidu, holding less than 30 percent of the search engine market in China compared with 60 per cent for Baidu.

"Its market dominance has reportedly not risen as fast as expected, which may prompt Google to have a second thought on its initial compromise made to the Chinese government on Internet censorship," said Ren Xianfang, a Beijing-based analyst with IHS Global Insight.

Shaun Rein, managing director of China Market Research Group in Shanghai, said Google might be using the cyberattacks as an excuse to exit China.

"I think Google is looking for a face-saving way to move out of China," Rein said.

"It hasn't done well in China -- Google in China has been a complete disaster compared with Baidu."