Sunday, March 14, 2010 Google (GOOG) Almost Certain to Close Down China Site

Hmmm, could be an ugly day for Google on Monday... despite China making up just a smallish fraction of current business. (BIDU) on the other hand might be ready to tack on even more premium to that juicy 55x forward PE.  While this is a hit long term to Google, any major downside in the stock price near term will be an over reaction as the stock has already been punished quite severely and the majority of its business is elsewhere.

  • Google has drawn up detailed plans for the closure of its Chinese search engine and is now “99.9 per cent” certain to go ahead as talks over censorship with the Chinese authorities have reached an apparent impasse, according to a person familiar with the company’s thinking.
  • In a hardening of positions on both sides, the Chinese government also on Friday threw down a direct public challenge to the US search company, with a warning that it was not prepared to compromise on internet censorship to stop Google leaving.
  • But while a decision could be made very soon, the company is likely to 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 person familiar with its position said.
  • Google is also seeking ways to keep its other operations in China going, although some executives fear that a backlash from the Chinese authorities could make it almost impossible to keep a presence in the country.
  • When the search giant first promised to end censorship in response to what it claimed were a series of cyber-attacks mounted from inside China, many China-watchers warned that its public defiance of Beijing would provoke a stern response.  On Friday, Li Yizhong, minister for industry and information technology, said: “If [Google] takes steps that violate Chinese laws, that would be unfriendly, that would be irresponsible, and they would have to bear the consequences.”
  • One person close to the search company, meanwhile, said that its senior executives remained “adamant” about ending the censorship. The company has also ruled out keeping the search service going by handing majority control, or even the entire business, to a local player, this person said.
  • Google’s executives have made it clear that they still hope to stay in the country, whatever the fate of “It’s very important to know we are not pulling out of China,” Eric Schmidt, Google’s chief executive, told the Financial Times at the time. “We have a good business in China. This is about the censorship rules, not anything else.”

  • Mr Li encouraged Google to continue its operations in the country. “[Google] has taken 30 per cent of the Chinese search market.   “If you don’t leave, China will welcome that, if you don’t leave, it will be beneficial for the development of the internet in China.”

Long Google in fund; no personal position

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