By LORETTA CHAO And AARON BACK
BEIJING — Google Inc.'s threat to walk away from China sent shockwaves through the country's fast-growing Internet industry Wednesday, with users, executives and analysts trying to gauge the potential fallout.
The U.S. search giant's announcement that it will stop censoring its Chinese search site, and may withdraw from the country altogether, triggered an outpouring of concern, and some anger, among Chinese Internet users. Students and others gathered at Google's offices in Beijing and Shanghai Wednesday with flowers in an emotional show of support for the company, which analysts say has an audience of more than 40 million loyal users in China.
Flowers left by China's Google users are seen on its sign outside the Google China headquarters in Beijing on Wednesday.
"It's a tragedy if Google pulls out of China," said Xu Hao, a junior studying Japanese at Tongji University in Shanghai. Wu Zhiwei, a sophomore studying philosophy at Fudan University in Shanghai, said "a lot of people are very angry at government censorship," and also said he understands that it contradicts Google's philosophies on free-Internet use.Google's statement, which also said that the company had discovered massive cyber attacks against itself and numerous other foreign companies that it said emanated from China, jolted foreign businesses that operate in the country. It prompted quick response from human rights advocates, who praised Google's statement, and from U.S. Secretary of State Hillary Clinton, who said Google's allegations "raise very serious concerns and questions." "We look to the Chinese government for an explanation," Mrs. Clinton said on a visit to Hawaii. "The ability to operate with confidence in cyberspace is critical in a modern society and economy."
The Internet giant operates a Chinese-language search engine from Beijing that has similar functions to its international English-language Web site, but which tailors its search and other products like news and maps to the needs of users based in China. Because the Web site is operated locally, the company is required to abide by Chinese regulations, including requirements to filter its content and remove search results related to pornography and politically sensitive content, in order to stay in operation.
The Google statement was widely followed on China's Internet, and was initially treated as a major story by local Web sites. But China's official state media offered limited coverage of the issue, and news portals later in the day began restricting coverage of the story after being ordered to play down coverage of it, according to several people working for the portals. Several sites had translated and posted the full text of the statement by David Drummond, Google's chief legal officer, originally published in English on Google's blogspot blog, which is not accessible in China, but these translations appeared to have been removed soon after they were posted.
Internet users continued to comment on the news, however. Some worried their Google e-mail accounts would be deleted, and others expressed concern that Chinese authorities would further tighten its Internet controls. "Our postings on the Internet are deleted by [other] Web sites, or when we upload pictures showing bad things on the street, they are deleted … I don't know what to do without Google," Ms. Xu said.
Google users "are all very active users of the Internet. They have high demand for the stability of Gmail, and also rely on it a lot in their daily lives," said Lu Bowang, managing partner with the China IntelliConsulting Corp. The firm estimates that 80 million people log on to Google at least once a week, and half are frequent users of the Web site. If Google leaves China, the impact on the Chinese Internet will be "huge," Mr. Lu said.
Despite significant difficulties along the way, Google has had a major impact throughout China's information technology sector since it entered the market in 2005. If the U.S. company's decision to discontinue its cooperation with Chinese censors leads to the shuttering of its Chinese Web site, Google.cn, it could throw the future of its investments and partnerships throughout the Chinese Internet and telecommunications sectors into question – while also potentially creating opportunities for Chinese rivals.
Google last March launched a music service in cooperation with Top100.cn, a Chinese company in which it owns a stake, and with the world's four biggest music labels, Warner Music GroupCorp., Vivendi SA's Universal Music, EMI Group Ltd., and Sony Corp.'s Sony Music Entertainment. That free, advertising-supported service, which lets users download or stream music in China, has been closely watched as a possible solution to rampant music piracy.
Sina Corp., one of China's largest Internet portals, partners with Google to offer the American company's search bar on its home page. China Mobile Ltd., the country's largest mobile carrier, uses Google's Chinese mobile search service on its handset browsers. The state-owned company has released several smart phones that run on Google's Android operating system, and is planning many more in partnership with various handset makers, as part of its competitive response to a rival carrier's launch of Apple Inc.'s iPhone in China.
Officials at Google's partner companies did not immediately respond to requests for comment, and it's not clear that its other initiatives and investments would be damaged if Google shuts its Chinese search business. Technically, most of Google's partnerships and other investments could continue, but by snubbing Chinese authorities so publicly, the company risks government retaliation against itself or its partners.
Google's share of the Chinese market has risen markedly in recent years, to 35.6% in the fourth quarter of 2009 from less than half that just three years earlier, according to Beijing-based research firm Analysys International. That still made it a distant second to Chinese competitorBaidu Inc., which boasted 58.4% market share in the latest period. But it makes Google arguably the most successful foreign Internet company in China, whose 338 million Internet users as of June were more than any other country.
Chinese government officials have yet to respond to Google's declaration, and Chinese media were largely silent on the issue, with some reporters saying the topics of censorship and cyber espionage were too sensitive. But a report by China's state-run Xinhua news agency quoted an official at China's State Council Information Office saying authorities were seeking more information on the Google statement. As of Wednesday, Google's Chinese Web site was still filtering search results, with a message at the bottom of its Web pages notifying users of the practice.
News of the security breach at Google and other companies alarmed other foreign companies with China operations. Google's statement against censorship in China also set a new standard for many multinational companies that have cooperated with the Chinese government for years, saying that sacrifices had to be made in order to reach China's massive market.
Mr. Lu lamented the possibility of Google's departure. He said Google's "influence on the Chinese Internet industry goes far beyond its role as a search engine, mostly thanks to its strong power of innovation … the existence of Google in the Chinese market was always regarded as a motivation for Chinese Internet ventures' efforts to innovate. Without Google, such motivation … would be gone."
Still, analysts said some in the industry could stand to benefit from Google's departure. Baidu, for example, could immediately benefit if its main competitor vanishes—although it might also risk a backlash if Chinese users angry over Google's treatment see Baidu as aligned with government censors.
Chinese Internet portals such as Netease.com Inc., Sohu.com Inc., and Tencent Holdings Ltd.--all of which have their own search engines with negligible market share—could also benefit.
"If Google pulls out from the market completely, it will be a fight between Tencent, Netease and Sohu for the number two spot," said Elinor Leung, an analyst at CLSA.
—Sky Canaves and James T. Areddy contributed to this article.Write to Loretta Chao at loretta.chao@wsj.com and Aaron Back at aaron.back@dowjones.com
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