“Despite what it has done, the Chinese government does not want to kick Google out of China, as the entire world is watching,” said a former senior Google executive.

The decision means not only that Google does not have to censor its search results, it even has the government’s approval for this. It also means that the global search giant can “stay” in China – a setback for its local rival, Baidu, which was well placed to benefit most from Google’s apparent departure.

(Read the complete article at Asia Times.)

“Google’s success to renew its ICP licence in China indicated in our view that Google wants to stay in China, and also want to comply with all the rules. In the past 6 months, capital market basically assume Google will gradually exit from China market and benefit Baidu share price. Thus, we expect Google licence renewal will be negative to Baidu share price.,” said Credit Suisse China Internet & Media Analyst Wallace Cheung, “According to our industry sources, Google will continue to provide services in China, as long as the services are in compliance to government regulations.”

Cheung believed wireless Internet including Android system is a key reason for Google to stay in China in the longer term. Regarding the key revenue contributing business – website search, Google is still relying on Google.com.hk to provide unfiltered content and services. Based on discussion with industry sources, Cheung expected Google paid search was down from 6 months ago, although traffic was stable because advertisers are unclear on Google future. The ICP licence renewal would attract some advertising spending back to Google.

“After ICP licence renewal, we expect Google is likely to be granted the China online mapping licence as well. Google Map has been a highly successful application for wireless Internet in China,” said Cheung.

However, for foreign players wishing to enter the market, there are many great challenges to overcome.  Almost every major internet companies (Google, Yahoo, eBay, Amazon, Expedia, etc.) in the world has come to China, but none of them can beat their local competitors, (such as Baidu, Sina, Sohu, Taobao, Ctrip, etc.)  Besides of strong local players, the culture difference, the lack of infrastructure and Chinese government’s altitude are some of the main reasons why many global internet companies failed in China.  I also discussed why eBay and Google exit from China market in 2006 and 2010 respectively.

Download the presentation file: China Internet – big opportunity even bigger challenge.

Baidu, the country’s largest Internet search company, outmuscled global search leader Google in the battle to attract Chinese computer users over the past decade. It would appear the natural choice of people now trying to find information on the Internet over their mobile phones. Yet Shenzhen-based Easou has double Baidu’s volume in terms of mobile traffic, according to an internal report from China Mobile, the country’s leading mobile-phone operator.

(Read the complete story at Asia Times.)

The picture shows a fake Samsung Anycall cellphone at a mobile phone market in Shenzhen, South China’s Guangdong Province. Photo: IC

Shanzhai ji are no-brand and largely unauthorized cell phones manufactured mainly by small factories in and around Guangdong Province. With their low prices and superb functionality, they are popular among students, factory workers, soldiers, and others on tight budgets. A shanzhai ji iPhone sells for about $100 and it works. Apart from selling domestically, they are also exported to Russia and India by small traders in China.

Researcher Karl J Weaver of Newport Technologies dubbed them “bandit handsets.” Shan means mountain. Zhai means fortress or hideout. Ji is the short form of shouji or cell phone, so as Weaver explained, “Shanzhai ji is, therefore, bandit handset.”

Last year, according to the Ministry of Industry and Information Technology, 176 million branded cell phones were sold in China. Apart from that, JP Morgan analyst Alvin Knock estimated there were 100 million bandit phones sold last year in China. Industry insider Wayne Zhang is more conservative and he estimated at least 50 million were sold in China. The difference could be the amount exported to nearby regions, such as Russia and India, said Zhang.

That means, about one fifth to one third of all cell phones sold in China are the bandit version. Who controls this giant market? And how can small factories with limited resources for research and development produce cell phones that work as well as the brands, such as Nokia, Motorola, Apple?

(Read the complete article at Global Times.)

Related article: MediaTek rides high in bandit territory from Asia Times

One clear winner is Baidu, Google’s main rival in the mainland. Baidu’s Nasdaq-listed shares soared 50% from January 12, when Google announced its intention to leave China, to April 1, adding US$6.9 billion to the Chinese company’s valuation. Google’s shares dropped 5% in the period, costing $10 billion in market capitalization, while the technology-heavy Nasdaq composite index gained about 3.9%.

Another winner is the government in Beijing. By standing firm in the face of Google’s demands that it be allowed to run uncensored Internet searches, it upheld the principle that every company in China has to obey Chinese laws.

And Google, too, is arguably a winner – the company can say it stood by the principle of Internet freedom (and its motto of “do no evil”) and its wish to run an unfiltered search engine in China. At the same time, it is still milking the vast Chinese market through its other interests.

“In a way, this is a solution that allows both sides to save face,” said an industry insider who in January predicted the possibility of Google running its Chinese search engine outside of the country (see Google searches for lock on China Asia Times Online, January 20, 2010).

(Read complete article at Asia Times.)

The shares tripled in the past year as investors bought into Tencent’s success in attracting advertising and players of its Internet games. Concern is now growing that the company’s spectacular growth might not be sustained. Deutsche Bank last week downgraded the stock to “hold” from “buy”, saying the company’s earnings growth would slow.

Shenzhen-based Tencent increased net profit 85% in 2009 after a 78% gain in 2008. This year could be a different story, with many analysts expecting the trend to slow. JP Morgan’s China Internet analyst Dick Wei expects net profit to grow only 43% this year, while Credit Suisse Wallace Cheung and Sharon Jing have forecast 51%.

(Read the complete article at Asia Times.)

Recently, it was able to gain market share from the local leader, Baidu. Google had a 35.6% share of market in the fourth quarter last year, compared to 31.3% in the third quarter, while Baidu’s share fell to 58.4% from 63.9%, according to Analysys International, a Beijing based market research firm. And this is a dramatic difference from what Google had 3-4 years ago, when it just entered China market – Google’s market share was as low as 16% in the second quarter of 2006, a year after it set up its China office.  At that time, Baidu had 50%, according to Analysys International.

And Google has momentum to do even better.  Google developed mobile search much earlier than Baidu.  According to former Google China president, Lee Kaifu, Google started developing mobile search in 2007, and it was, and still remains, one of its key focuses.  It has China Mobile, China’s largest mobile operator, as its mobile search partner since 2007.  Baidu only started to develop mobile search last year, and last May, partnered with the smallest of the three operators, China Telecom.  As 3G rolls out in China, more and more people will search the internet with their phones. Google’s advantages (over Baidu) should be even more apparent.

If Google can gain a further 5% from Baidu, that is 40% against Baidu’s 50-55%, Google will no longer be just a small rival. It will be a serious competitor to Baidu, and a powerful player in China internet space. So, why it chose to leave China market now?

With 384 million users, China has become the world’s largest internet market and it is still growing very fast – internet users increased 28.9% from a year earlier. (Note: the figure is from CNNIC, a Chinese government back research institute.) Moreover, it has a lot of room to grow, as only 29 percent of China’s population is online.  Why walk away from such potential, when your China operation is in fact doing well?

It is really bizarre, from any business points of view. But, an industrial insider suggested, there might be a chess game being played right now.

(Read complete article.)

“We have decided we are no longer willing to continue censoring our results on Google.cn, and so over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all. We recognize that this may well mean having to shut down Google.cn, and potentially our offices in China,” said David Drummond, SVP, Corporate Development and Chief Legal Officer in a statement. (Reference link: http://googleblog.blogspot.com/2010/01/new-approach-to-china.html)

If that is the case, it will a major setback to its effort in China, the world’s largest internet market. Since it started Google.cn and its China office in mid 2005, Google has gradually improved its services in the country. (See earlier posts:
New Broom may sweep Google China ahead, Google, Baidu do battle in China’s 3G frontier) Recently, it was able to gain market share from the leader, Baidu. According to Analysys International, Google had a 35.6% share of market in the fourth quarter, compared to 31.3% in the third quarter, while Baidu’s share fell to 58.4% from 63.9%.

All these effort will be wasted if Google start bargaining with Chinese government, which is unlikely to win the search giant any concessions from Beijing censors.