Google Hopes to Retain Business Unit in China

Few people say they think Google’s Chinese-language search engine will survive the company’s confrontation with China.

But as Google prepares for talks with the Chinese government over its decision to stop cooperating with censorship laws there, the rest of Google’s business and operations in China hangs in the balance.

Google has said it is prepared to shut down its local Chinese-language search engine, Google.cn, unless it is allowed to run it uncensored. The company has also indicated that it would like to retain much of its operations there, including its growing ranks of Chinese engineers, its sales force and its toehold in the country’s mobile phone business.

If the company can reach an accommodation on these issues with Chinese authorities, the reward could be significant. Google would be able to claim a principled stand on free speech and human rights while suffering only marginal damage to its business in China.

Experts on China say that is not likely to be easy. The company’s public repudiation of censorship in China has put the authorities there in a position where a forceful rebuke of Google may be all but inevitable.

“The Chinese government is in a very difficult position,” said Xiao Qiang, director of the China Internet Project at the University of California, Berkeley. Mr. Qiang said that it would be hard for the Chinese government to be conciliatory without losing face. “They have never responded to a public challenge like this by not doing something,” he said.

What is more, there are indications that Google’s stand against Chinese censorship is already affecting some of the company’s business there. On Tuesday, Google said it would postpone the release in China of two mobile phones that are based on its Android operating system. The phones, made by Motorola and Samsung, and expected to run on China Unicom’s network, include many of Google’s mobile applications. Google asked its partners to postpone their release until the fate of its services in the country was settled.

Google made the announcement last week after it discovered that hacking attacks traced to mainland China had been directed at it and more than 30 other companies based in the United States. Motorola was one of the companies attacked, according to a person with knowledge of the attacks. Motorola declined to confirm an attack. A spokeswoman, Jennifer Erickson, said: “Motorola is committed to offering the most innovative mobile products and experiences in China, including Android-powered devices.”

No service is more threatened by Google’s vow to end its cooperation with Chinese censors than Google.cn. Chinese government officials have already appeared to foreclose the idea of an uncensored Internet search engine, saying simply that all Internet companies are welcome to operate in China as long as they follow the law.

But people with knowledge of Google’s strategy say that in talks to be held in the days and weeks ahead, company executives will make the case to the Chinese government that Google should be allowed to keep many of its other China operations intact. The business logic behind that drive is simple.

In most countries, Google draws the majority of its revenue from ads that appear on its search engine, but the No. 1 source of revenue in China comes from ads that Chinese companies place on Google’s sites in the United States. A person knowledgeable about Google’s business in China said ads that run on a network of Chinese Web sites are the company’s second-largest source of revenue in the country. Google can retain both of those if it is allowed to keep a sales force and advertising network there.

“Theoretically, they could keep a decent portion of the revenue,” said Brian Pitz, a UBS analyst.

Google will not disclose its revenue in China, but people with knowledge of the company’s finances said that quarterly sales were in the vicinity of $150 million, a small fraction of its nearly $6 billion global revenue in the most recent quarter.

The fate of Google’s research and development operations in China may be as important to the company as that revenue. Google is starved for engineering talent, and it has opened offices around the world in large part to tap local pools of skilled programmers. If forced to shut down entirely, Google may try to offer jobs in the United States to some of its Chinese engineers, but many more may lose their jobs, or worse for Google, end up working for rivals like Baidu, the leading Chinese search engine, or Microsoft.

Last week, David Drummond, Google’s chief legal counsel, indicated the company’s desire to keep its work force in China, noting that even before it introduced its local search engine in 2006, Google had a research and development operation there.

“We could revert back to when we had employees, but no site,” Mr. Drummond said.

Some experts warned Google not to expect much.

“It’s going to be a tricky minuet,” said Tom Doctoroff, chief executive for Greater China for JWT, the worldwide advertising agency. Mr. Doctoroff said Google’s decision to air its grievances in the open was “inelegant.”

“With any other company this would be the end,” he said. But because so much of China’s educated class values Google, the Chinese government may “be willing to find a face-saving solution,” he added.