By Melanie Lee
SHANGHAI (Reuters) - GOOGLE (GOOG.NQ)Inc said China has given it permission to continue operating its Chinese search page, resolving a censorship dispute that had threatened Google's future in the world's biggest Internet market.
The news sent Google shares up 2 percent as it eased immediate concerns that Beijing would kick the company out for taking a hard stance against Web censorship.
Analysts, however, stressed that Google's position in China remains fragile and that the Chinese market likely will account for a fraction of Google's revenue for some time.
"It is good news for the Chinese consumer, good news for the Chinese Internet industry that Google is still available in the country in some shape or form," said Ted Dean, president of Beijing-based business advisory firm BDA. "But many of the issues around why Google shut down its Chinese search page in the first place are still there."
Google had embarrassed China in January by drawing global attention to Beijing's Web censorship practices and by accusing hackers in the country of launching a sophisticated cyber attack on Google and other major U.S. companies.
Google had said it was no longer willing to offer censored search results, and the row had added to tensions between Washington and Beijing, which also saw diplomatic spats over China's currency, U.S. arms sales to Taiwan, and Tibet.
But tensions have subsided in recent months. On Thursday, the Obama administration declined to label China a currency manipulator, and a decision to allow Google to keep its Chinese website could remove another source of friction.
FACE-SAVING COMPROMISE
Last week, Google offered Beijing a face-saving compromise: it stopped automatically rerouting the google.cn page to an uncensored Hong Kong-based search page. Instead, visitors to google.cn have to click once to go to the Hong Kong page.
"China has renewed our license," a Google spokeswoman told Reuters on Friday. "We are very pleased that the government has renewed our ICP (Internet Content Provider) license and we look forward to continuing to provide Web search and local products to our users in China."
Analysts estimate Google's revenue in China to be in the range of $300 million to roughly $600 million, a slice of the firm's $24 billion in annual revenue.
But China's long-term growth prospects are key for Google. With nearly 400 million users, China only has an Internet penetration rate of 25 percent with huge market opportunities in search, e-commerce and online gaming, analysts say.
Google has around 30 percent market share of China's 7 billion yuan ($1 billion) search market, a distant second to the dominant local player, Baidu Inc. Shares of Baidu, which have soared about 75 percent since Google's China problems emerged in January, fell 2.7 percent on Friday.
"China doesn't necessary want Google to exit the country. China just wants to exert its control over Google in its country," said Colin Gillis, director of research at BGC Financial.
He said disputes between Google and China over censorship can still flare up, even after the license renewal.
"It's going to continue to be a distraction for management. It may look like a positive for now, but it doesn't change the fact that Google is still offering uncensored results. It's going to continue to be a drag on management's focus," he said. "In our opinion there is no chance for Google to earn profits in China in the near term."
Elinor Leung, senior analyst with CLSA in Hong Kong, said she expects traffic from Chinese visitors to continue to drop for Google and for advertisers to turn to domestic choices such as Baidu.
"This doesn't really change anything about Google's position in China. The redirection to its Hong Kong site is ongoing so it is the same problem as before," said Elinor Leung, senior analyst with CLSA in Hong Kong.
Google Chief Executive Eric Schmidt told reporters on Thursday in the United States that he was confident the company would secure the license.
(Reporting by Melanie Lee. Additional reporting by Jason Subler, Jonathan Thatcher and Jennifer Saba; Editing by Jeremy Laurence, Tiffany Wu and Robert MacMillan)
