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Google's Eric Schmidt expects China to renew licence

China News 9th July 2010

Schmidt said he expected Beijing to renew its licence to operate a website in the world's largest internet market

Google chief executive Eric Schmidt expressed confidence the company will secure a licence to operate a website in China, confounding speculation Beijing may shut down its flagship site there.

Schmidt, addressing executives and financiers at an annual gathering of the industry's movers and shakers in the Idaho mountain resort of Sun Valley, said he expected Beijing to renew its licence to operate a website in the world's largest internet market, but offered no timeframe.

Analysts said Google's decision to stop automatically rerouting users to its uncensored search page showed a softening of stance and willingness to compromise to maintain a foothold in China, the world's largest internet market by users.

"We would expect we would get the necessary licence," Schmidt said. "We now expect to get a renewal."

Google stunned markets and consumers in January when it warned it might quit the country, saying it would not provide the censored search results that China requires.

The company's row with the Chinese government over internet censorship and hacking attacks added to a burst of tensions between Washington and Beijing, which also saw diplomatic spats over China's currency, US arms sales to Taiwan and Tibet.

But tensions have subsided in recent months. On Thursday the Obama administration declined to label China a currency manipulator, and a decision to allow Google to keep its Chinese website could remove another source of friction.

In March, Google began to redirect visitors to its China website to a search site in Hong Kong that provided uncensored results.

But last week, Google said it would stop automatically rerouting users after Beijing indicated it would not renew its internet content provider licence if it continued to do so.

"The government views the January announcement as a loss of face," said Edward Yu, chief executive of Beijing-based research firm Analysys International, speaking before Schmidt's comments.

"But because Google has now made this move, there is a chance they will most probably meet in the middle and Google will get the licence."

Deadline standoff

China's ministry of industry and information technology said on Wednesday that it was reviewing Google's licence renewal application but gave no deadline for completion.

Two similar standoffs in the past, one involving major PC makers like HP and Dell, and the other global chip leader Intel, ended in compromises that saw Beijing back down under huge international pressure.

Analysts and investors have discounted a severe curtailment of Google's business in the world's third largest economy.

Its stock has slid more than 26% this year, hit partly by fears that its stance against censorship will incense a Chinese government intent on maintaining control over the flow of information within its borders.

By contrast, local search leader Baidu has seen its stock soar about 75% since Google's announcement on investor hopes for a big market share gain.

An outright licence rejection – as expected by some analysts – could spell future trouble for Google's non-search businesses in China, such as Android-based mobile phones, now carried by the nation's largest telecoms carriers.

Google's search business in China accounts for a tiny slice of the company's $24bn (£15.82bn) in annual revenue. Analyst estimates of Google's annual revenue in China range from $300m to $600m, but long-term growth prospects are key.

Google now operates a landing page for its Google.cn website and clicking anywhere on the page brings the user to the Google.com.hk site. But if Beijing refuses to renew its licence, the site would be effectively shut down.

Schmidt's comments come halfway through what has been a tumultuous year for the company, as the world's No 1 search leader deepened its rivalry with iPhone-maker Apple and social network Facebook.

Google is due to report its second-quarter financial results next week.

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