Google '99.9% Certain' to Close Chinese Search Engine: Report

Tech giant Google (GOOG) appears ready to make good on its threat to shut its Chinese-language search engine, two months after challenging China over Web censorship. In light of the Chinese government's refusal to relax its Web filtering, which a top government official reiterated Friday, Google is now "99.9%" certain" to shutter Google.cn, according to the Financial Times.

Google's apparent readiness to close Google.cn comes one day after the Chinese government issued Google a stern rebuke, calling the U.S. Web titan "unfriendly and irresponsible," and indicating that it's unwilling to soften its Web censorship policies. The actual closure could take "some time to follow through with the plan as it seeks an orderly closure and takes steps to protect local employees from retaliation by the authorities," the FT reported.

"This is not a surprise," Ian Bremmer, president of the geopolitical research firm Eurasia Group, told DailyFinance Saturday. "The Chinese were never going to cave to what they saw as unilateral demands from Google."

The latest developments suggest that the conflict between Google and China, which has gripped the tech world and drawn the interest of key U.S. and Chinese diplomatic and trade officials, is nearing a climax. In January, Google declared its intention to stop censoring its Google.cn after disclosing it was the victim of a massive, China-based cyber-attack. U.S. officials have backed Google in the dispute.

China: U.S. Companies Must Follow Our Censorship Laws

After weeks of fitful negotiations, China forcefully reiterated its position Friday that companies operating in China must follow national laws. "I hope Google can respect Chinese rules and regulations," Li Yizhong, Minister of Industry and Information Technology, said Friday. "If you insist on taking this action that violates Chinese laws, I repeat: You are unfriendly and irresponsible, and you yourself will have to bear the consequences."

Google may very well leave China, but Bremmer says the bigger question is what this means for U.S. firms doing business in China in the future, given the country's information restrictions and a state-dominated economy that controls the major industries.

"What Google said publicly, a great many U.S. corporations in the tech sector are saying to U.S. government officials privately," Bremmer said. "The competitive environment [in China] -- in a context without an independent judiciary or clear rule of law -- is going to get much more challenging."

Endgame: Sergey Brin's Moral Stand

Google's business operations in China constitute only about 2% of its annual revenue of $23.2 billion, and the company is getting whipped by Baidu.com, which controls 60% of the Chinese Web search market to Google's 30%. This has led some pundits to suggest that Google doesn't have a lot to lose by backing out -- but a lot to gain in terms of moral capital and public goodwill for its seemingly principled stand.

But Google's threat to quit China could indeed have major financial consequences for the company, as UBS analyst Brian Pitz recently observed. China continues its rapid economic growth, and Internet access is exploding there. "If Google were to exit China, we believe this represents a significant lost growth opportunity in the long term," Pitz said after Google's announcement. "China is the world's largest Internet market with roughly 298 million users, with only 22% of the population penetrated."

In truth, most business observers simply aren't used to major American companies taking very public moral stands on human rights issues in the face of the Red Giant. It's basically unprecedented, so jaundiced pundits reflexively assume that Google must have an ulterior motive. Like Apple CEO Steve Jobs is reported to have said, many observers believe Google's "Don't be evil" motto is "bullshit."

For years, Google has chafed at China's Web filtering policies, which force the search company to remove politically controversial material -- like images of the Tiananmen Square massacre -- from its Chinese language search engine. But for top Google executives, particularly co-founder Sergey Brin, who as a child fled the Soviet Union for the U.S., the China-based attack on human rights advocates was simply more than they could tolerate.

Revelations that Chinese-based hackers had attacked Google's systems in an effort to infiltrate the Gmail accounts of Chinese dissidents and human rights workers were apparently the final straw. After years of accepting Google CEO Eric Schmidt's argument that working with China -- even under conditions of censorship -- would help open the country, Brin finally put his foot down. (The Wall Street Journal has more details on Brin's role in the Google-China dispute here.)

China Unicom Still Will Use Google's Android

Still, Li encouraged Google to keep Google.cn in the country, but after Google officials reaffirmed their commitment to ending censorship, that looks very unlikely. Even if Google does shut down Google.cn, it will likely keep other aspects of its business operations in China, including the closely watched development of its Android smartphone operating system.

Both China Mobile, the world's largest wireless provider with over 500 million subscribers, and China Unicom, which boasts nearly 200 million customers, are developing products based on Android. Both firms are state-controlled.

"We recognize that Android is a mainstream system," Unicom Chairman Chang Xiaobing told Reuters earlier this month. "We will definitely use Google's Android in our mobile handsets."