Google threatening to quit China

China is one of the few markets where Google is not a leader, lagging Baidu, which has a 60 percent share of the Chinese Internet search market versus Google's 30 percent.

Other homegrown Chinese Web firms that also practice self censorship include Web portal operators Sina and Sohu, two of the country's best known Internet names.

Microsoft recently launched a Chinese version of its highly hyped Bing search engine in China, and said it is taking the market very seriously. Microsoft, whose rival Hotmail e-mail service is also available in China, said it had no indication that any of its mail properties had been compromised in China.

A Google exit from China could open up the field for others, including Microsoft, and allow Baidu to increase its dominance.

"We believe there's a high chance that Google.cn will not be allowed to operate without censoring search results," JPMorgan analyst Dick Wei wrote in a note, adding Baidu would be a major beneficiary as it offers many of the same services as Google.

"If Google.cn is not allowed to run in China, this could also benefit up-and-coming search engines like Tencent's SoSo, Sohu's Sogou and NetEase's Youdao."

Shares of Google fell 1.3 percent in after-hours trading on Tuesday, while Baidu jumped 6.8 percent.

MOVE UNLIKELY?

While some reckon Google could ultimately leave China rather than continue to censor itself there, other observers saw the company's announcement as a strategic move as it braces for tough negotiations with China.

"My feeling is that it is more a comment than an announcement,' said Credit Suisse analyst Wallace Cheung. "It seems like a statement before meeting with China's government."

Others also doubted Google would pull out of China.

"We believe Google will proably stay as China is a vital market," said CLSA analyst Elinor Leung in a research note. "Any China Internet veteran understands the need to work within the system and the Chinese preference for gradual change."

Many of Google's primary services, such as Gmail and Google.com, became briefly inaccessible to many Chinese users last year, and its YouTube video site has been inaccessible there since March.

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