If Google Pulls Out Of China, What's The Fallout?

China and its Internet practices have been under intense scrutiny since Google launched its first Chinese-language search engine in 2000. And with the 2006 launch of Google.cn, which censors pornographic and politically sensitive search results, Chinese laws imposed even stricter censorship regulations that Web companies must abide by in order to do business there.

Along with the censorship issues, Google is also fed up with recent cyberattacks that originated in China and reportedly targeted the Gmail accounts of Chinese human rights advocates. Google this week said the attacks resulted in the loss of some intellectual property.

Google's re-examination of its business practices in China and its threat of a possible pullout, while admirable to some, would deal the international search giant a strong blow and give Google rivals Apple and Microsoft a stronger foothold there.

There has yet to be official word from China about Google's threat and its bid to no longer censor its search results in China. However, a spokesperson for the Chinese Foreign Ministry told The New York Times that companies that do business in China must abide by Chinese laws -- plain and simple.

The hard line from Chinese officials could ultimately work against Google in its political Internet chess game, as China is the world's largest Internet market and Google's search capabilities are well entrenched. If no agreement between China and Google is reached and Google ultimately leaves the country, which seems possible, Google will lose a massive chunk of its search business.

Although Google may be able to discontinue its search business and carry on with other ventures in China, it is highly unlikely that it will gain the traction needed to make up for what it loses in search.

Tools like Google Maps, Gmail, Google Android and others are currently available to the Chinese market. While some show promise, most rely on some form of Google's search functionality to work at their full capabilities. Other Google products such as Google Books and Google Voice would face stronger hurdles due to China's strict censorship policies.

Analysts have told Reuters that without search as its core business, Google will surely struggle in China.

"Android ... has potential but if it offers any of the Google services like Gmail or search then it may have a problems once Google leaves," iResearch analyst Hao Jun Bo told Reuters.

And by the looks of things, Google may be leaving China sooner than later.

"We believe that the Chinese government and Google will not be able to easily [reach a] compromise," said UBS analyst Wang Jinjin in a research note, Reuters reported.