Google – China = Baidu++

google-logo Google (GOOG) announced yesterday that they may shut down their Chinese operations completely and the feeling amongst analysts is that this is more likely than not to happen. The Chinese search engine market is dominated by Baidu (BIDU) with Google a distant second. The announcement has caused Google’s stock to drop and Baidu’s stock to rise significantly because if Google drops out of China, Baidu will have nearly 95% of the Chinese search market. Yahoo operations in China are completely run by Alibaba, which is 39% owned by Yahoo and is a very small player in the search market.

In the long run this might hamper Google’s growth over the long term because China is the largest market in the world with significant growth potential for Google. However in the short term the effect on Google is minimal – a loss of somewhere between 300-600 million in revenue.

With their current position Google has really established their “Do No Evil” policy. Their reason for leaving is a connection between successful hacking attempts to steal intellectual property, censorship and targeting of human rights activists by the hackers.

Most multinationals don’t want to ignore the Chinese market inspite of rampant theft of intellectual property, blatant cloning of popular items and tight government control on everything because China is where the growth is. Maybe others will follow suit but it is unlikely.

As an investor, buy Google (I own 2 measly shares), buy Baidu.

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