Google Tests Fate in China as Mapping Application Deadline Looms

Google Inc. (GOOG)’s defiance of China’s censorship rules resulted in the world’s most popular search engine being pulled out of the country 12 months ago. This year, the dispute may be spilling over to Gmail and maps.

As of yesterday, China’s State Bureau of Surveying and Mapping hadn’t received an application from Google to keep offering its service, as required under regulations announced in May, according to Kou Jingwei, the bureau’s spokesman. Jessica Powell, a Google spokeswoman, declined to comment on whether the company has applied. The deadline is tomorrow.

As Baidu Inc. widens its lead in the world’s largest Web market, a discontinuation of the mapping service would signal Google’s dimming outlook in China, according to analysts, after the company blamed local censors for disruptions in its e-mail service. The latest clash shows the government hasn’t forgiven Google’s decision to halt compliance with censorship rules on Internet searches, said Christopher Tang, a professor of business administration at UCLA.

“Google faces major problems within China,” Tang said. “Unless Google is going to change the way they operate, unless they are willing to apologize to the Chinese government, unless they are willing to cooperate with the Chinese government to impose censorship according to the wishes of the Chinese government. Otherwise, there’s no deal.”

Google British East India

A March 4 opinion piece in the official People’s Daily, the mouthpiece of China’s Communist Party, compared Google with the British East India Company, whose sales of opium in the country was the root of two 19th-century conflicts.

China introduced a new licensing system for Internet mapping services in May to “address illegal practices” and an “inadequate awareness of national security,” the official Xinhua News agency reported March 21. Since 2008, online mapping services have committed more than 1,000 violations including unauthorized disclosure of confidential information and mistakes in drawing the country’s border, Xinhua reported.

As of mid-February, the bureau had granted licenses to 105 websites for mapping services, including Baidu, Sina Corp., a Nokia Oyj (NOK1V) joint venture and China Mobile Ltd. (941), Xinhua said. The bureau has pledged to close unapproved websites.

The Bureau said applications for license must be made by March 31, to avoid “administrative actions” it will take by July 1. The Bureau this month vowed “resolute punishment for serious violations,” such as closing websites, Xinhua said.

Photographer: Nelson Ching/Bloomberg

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Photographer: Nelson Ching/Bloomberg

Google Inc.’s defiance of China’s censorship rules resulted in the world’s most popular search engine being pulled out of the country 12 months ago. This year, the dispute may be spilling over to Gmail and maps.

License Renewal

“We are examining the regulations to understand their impact on our maps products in China,” Google said in a statement.

Google in July was able to renew its Internet-service license in China through 2012, even after shuttering its Google.cn site in China and redirecting users to a Hong Kong site. The company had said it was no longer willing to comply with online censorship rules on topics such as Tiananmen Square crackdown in 1989 and Tibet independence.

In the latest round of friction, Google accused local censors of disrupting its Gmail e-mail service and disguising the blockage as technical issues on Google’s behalf. China’s Foreign Ministry spokeswoman Jiang Yu on March 22 called that claim “unacceptable.”

“In the 17-19th centuries, the East India Company made their contribution for the development of a British Empire where ‘‘the sun never sets’’ through the monopoly of trade, the opium trade and openly looting,” the People’s Daily piece said. “Google is essentially similar to the East India Company, but is smarter in its performance than the East India Company. Google does not burn and loot, and they are also good at camouflage.”

Opium War

China fought the first Opium War with the British Empire in 1839-42, and a second from 1856-1860.

Beyond Google’s own history of conflict with China’s censors, the company is now also being perceived as a greater threat to the government in light of popular unrest throughout North Africa and the Middle East that has already brought down regimes in Tunisia and Egypt, said James Lewis, senior fellow at the Center for Strategic and International Studies, a Washington-based policy group.

“Google’s caught in some larger political issues,” Lewis said. “It’s a very big problem, and the events in the Middle East have made it a little bit bigger.”

Google executive Wael Ghonim helped set up a website for Egypt opposition leader Mohamed ElBaradei as anti-government protests in the Middle Eastern country toppled President Hosni Mubarak. Ghonim’s 11-day detention turned him into a hero for a disaffected Egyptian youth.

Blocking Facebook

China, the world’s largest Internet market with 457 million Web users, bans pornography, gambling and content critical of the ruling Communist Party. It already blocks Google’s YouTube site as well as social-networking websites run by Facebook Inc. and Twitter Inc.

The People’s Daily piece, which also called Google “a tool of U.S. expansionism and hegemony,” ran on other popular websites in China including Tencent Holdings Ltd. (700)’s QQ.com and Sina Corp.

Without specifically commenting on the People’s Daily piece, Mountain View, California-based Google denied that the U.S. government meddles in its affairs.

“Contrary to assertions made by the Chinese media, every decision we have made regarding China has been made by Google alone,” the company said March 7 in an e-mailed reply to Bloomberg News.

Widening Gap

Baidu accounted for 75.5 percent of China’s search-engine market by revenue in the fourth quarter, rising from 73 percent in the previous three months, according to research company Analysys International. Google’s share dropped to 19.6 percent from 21.6 percent, the research firm said.

Google may fall further behind as companies such as Sina, owner of China’s third-most-visited website, said it dropped Google’s search engine to use its proprietary technology.

Google’s China business is “immaterial to the overall financials,” so the value of its operations in the country has more to do with the future than the present, said Clay Moran, an analyst at Benchmark Co. who rates the shares “buy” and doesn’t own any.

China contributed about 1 percent of revenue before it changed its approach in the country to search early last year, Moran estimates.

Sina stopped using Google’s search service after the expiry of a contract, Liu Qi, a spokesman at Chinese Web portal operator, said in an e-mail today. The Shanghai-based company will instead use its own proprietary technology, he said.

“It’s a lot less strategic than it was a year or two ago,” Moran said. “Investors prefer to see Google maintaining a position in the country so that it can potentially benefit from growth in the future.”

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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