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Google could find new road in China

By Alexei Oreskovic

SAN FRANCISCO (Reuters) - Google Inc says it may be forced to leave China, but the search giant has room to compromise in its battle with Beijing, and both sides have reason to do so.

The company's surprise statement on Tuesday that it was no longer ready to censor search results in China and might pull out of the world's biggest Internet market by users has put it squarely at odds with the Chinese government.

But analysts and business experts on Wednesday said Google's past clashes with powerful companies and industries, and the importance of the Chinese market to Google's future, suggest that self-imposed exile from China may not be Google's end-game.

Hard lines in previous battles have been negotiating tactics and could be this time, too, they said.

"I'm sure they will be pragmatic, Google is a very dynamic company," said Christopher Tang, a professor at the UCLA Anderson School of Management. "I doubt they will walk away like that. The presence in China is very crucial because that's the next wave."

China has roughly 360 million users, and its search market topped $1 billion last year.

While Google has struggled to compete with local powerhouse Baidu Inc, China represents a major growth opportunity.

"As Google grows they're breaking into new markets, and they're challenging the status quo on a lot of things," said Canaccord Adams analyst Jeff Rath.

In China, where the government places tight limits on citizens' Web access, Google's search engine represents a threat to the state's control.

But many businesses and industries have been threatened in other ways by Google's expansion, and the company has compromised in some of those clashes.

PAST BATTLES POINT TO CHINA PLANS?

Google's business of offering free products and services has helped it steamroll into many new markets in recent years, from books to wireless phones.

While Google has insisted it had the right to scan thousands of library books and put them online, the company chose to settle a class action suit in 2008 bought by authors and publishers' groups.

It agreed to a $125 million settlement that would create a books rights registry, where authors and publishers register works and are paid for books that Google puts online.

Google attempted to crack open the wireless phone market, which has traditionally been controlled by communications companies. But after an initial clash, it has opted to partner some incumbent wireless firms rather than continue its unilateral assault.

Some say that pragmatic approach could work in China as well, even though Google has taken a stand on free Internet speech.

POSSIBLE COMPROMISES

UCLA's Tang said Google could reach an agreement with Beijing in which it dropped its search efforts but offered other products such as the Google Voice Internet calling service or Google's archive of digital books.

The Chinese government censors much of the Web that is viewable to Chinese surfers and potentially could allow Google to operate an unfiltered Chinese language version of the Web site from that content, said Stanford University Graduate School of Business Professor Haim Mendelson.

The government then would censor, but Google would not.

While Mendelson said he thought it was more likely Google would leave China, he said a compromise could give both sides something they want.

China wants to maintain its image at home and abroad, and being rebuffed by Google doesn't help.

"Google has some interest in maintaining a presence in China, and the Chinese government has an interest as well," said Mendelson.

"The Chinese government wants to project an image of the country where they do want U.S. companies to be present." (Reporting by Alexei Oreskovic; Editing by Peter Henderson)

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