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Google May Shut Down Operations In China

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Google (NSDQ: GOOG) says it is reviewing its operations in China — and may even shut them down — citing limits to freedom of speech in that country. The move would mean that Google would lose access to a country that could be its biggest source of long-term growth. China is already the largest internet market in the world, even though internet penetration there far lags that in more developed countries.

In a blog post, Chief Legal Officer David Drummond cites recent attacks on the Gmail accounts of human rights activists in both China, the United States and Europe as driving the decision. “These attacks and the surveillance they have uncovered–combined with the attempts over the past year to further limit free speech on the web–have led us to conclude that we should review the feasibility of our business operations in China,” he says. Drummond goes on to say that Google will no longer censor its search results in China and will therefore discuss with the Chinese government whether it can operate an “unfiltered search engine within the law.” That’s unlikely, and Drummond says “this may well mean having to shut down, and potentially our offices in China.”

The move is a shift in strategy for a company that –despite having some of its properties, including YouTube, pulled offline by the Chinese government over the last year — has continued to invest heavily there. Last March, the company announced the high-profile debut of a legal music search engine in China in order to compete with Baidu (NSDQ: BIDU), which dominates the web search market there. And, due to a search deal with major carrier China Mobile, Google has already matched Baidu’s share in the mobile search share market. During the company’s most recent earnings call, executives talked up the state of the China business, saying several times that China had been a “strong performer” during the quarter.

In the blog post, Google never directly blames the Chinese government for the attacks — which involved both a “targeted attack” on its corporate infrastructure and a phishing or malware attack — both aimed at Chinese human rights activists. However, Google says that the “information goes to the heart of a much bigger global debate about freedom of speech” — and that when it launched its service in China three years ago it wasn’t a decision that was irreversible and instead was one that would depend on “conditions in China, including new laws and other restrictions on our services.”

One additional thought: Google’s decision — which is already being called “corporate bravery” by some is quite the contrast to Yahoo (NSDQ: YHOO), which has been accused in the past of handing over information about dissident e-mail accounts to the Chinese government.

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