Google routes China advertisers to rivals as closure looks certain

Google advertisers in China are being advised to switch to rivals such as Baidu and business partners are exploring alternatives as speculation grows the US company will shut its website in the country.

"When we talk to clients, we have been pushing them in the direction of Baidu more," said Vincent Kobler, Managing Director at EmporioAsia Leo Burnett in Shanghai, which buys advertising on behalf of customers.

"The Chinese government has taken a firm stance and Google, they have their own principles, and are going to shut down," Kobler added.

Google clients and partners may be turning more pessimistic about the company's prospects of operating in China after the government last week said a plan to end censorship at the Google.cn site was 'irresponsible'. Failure to end the dispute may lift sales at Baidu and Sohu.com, and force partners such as China Mobile and Sina Corporation to review co-operation.

"To me, it seems an inevitable outcome, given the stance they have taken," said Paul Wuh, Head of Internet Research at Samsung Securities in Hong Kong. Google's mobile phone operations, in addition to its search-engine business, will be undermined, Wuh said.

Mountain View, California-based Google said on January 12 it plans to stop censoring search results on its Chinese site after the company was hit by cyber attacks originating in China, and may end its local operations pending talks with the government on the proposal. Chairman Eric Schmidt said last week that the negotiations may yield an outcome "soon".

"Our co-operation with Google rests on the company maintaining its operations in China," said Liu Qi, a Beijing- based spokesman at Sina, operator of China's third-most visited website, which has Google's search engine built in. The Chinese company has alternative arrangements in place to ensure it won't be affected by Google's possible pullout, Liu said.

In 2006, Google agreed to comply with requirements to filter its search results on the Google.cn site to expand its operations in China, where the ruling Communist Party restricts information it deems unfavourable.

"The company will have to bear the related results" if rules are violated, Li Yizhong, Minister of Industry and Information Technology, said on March 12. The plan by Google to end censorship is "unfriendly and irresponsible", he said.

Chinese regulators told some of Google's biggest partners on March 12 that they should plan for the company's retreat from the country, the New York Times reported yesterday, citing a person with knowledge of the notice. It indicated negotiations with the government had reached an impasse, the report said.

Jill Hazelbaker, a spokeswoman for Google, declined to comment when contacted by Bloomberg News. Wang Lijian, spokesman for the Ministry of Industry and Information Technology, declined to comment on the New York Times report. Google has drawn up detailed plans to shut its search engine in China and is "99.9 per cent" certain of going ahead with the closure, the Financial Times reported on March 13, citing a person it didn't name.

"If Google is no longer available, we will turn to other service providers," said K K Tsang, Hong Kong-based CEO at GroupM, which buys ad space for clients. China, home to more internet users than the total US population, censors online content it deems critical of the government by shutting down websites based in the nation and blocking access to overseas sites including those of Facebook, Twitter and Google's YouTube. Authorities also censor media through state ownership of all newspapers, television and radio stations.

China's market environment "is sufficiently open," said Kai-fu Lee, who quit as head of Google's operations in China in September to found his technology investment company.

"People in China are getting access to more information than ever before," said Lee, who declined to comment on the discussions between Google and the Chinese government.

China Mobile, the world's biggest phone company by market value, has offered Google's search services to its wireless users since 2007. Rainie Lei, a Hong Kong-based spokeswoman at the carrier, declined to comment.

In January, Google indefinitely postponed plans to introduce two handsets co-developed with China Unicom (Hong Kong). Chinese mobile-phone makers including Lenovo Group have said they will design products using Google's Android technology.

Towards the end of February, advertising officials such as Kobler said business with Google was returning to normal on speculation that the company may reach a compromise with the government or that any pullout won't occur soon.

"Things have stabilised", Kobler said as the US company posted recruitment ads for engineers, managers and sales staff on its website and employees at its Beijing office said life had returned to normal six weeks after the pullout threat.

Advertisers were returning after more than 20 per cent of Google customers in China probably switched to alternative paid-search providers after the January 12 announcement. Google is expected to generate $300 million to $350m of revenue from China this year, a Citigroup report said.