Google Inc's near-silence and seeming inaction since its bombshell announcement it may exit China reflects the Internet search leader's fear of running afoul of the law and jeopardizing a multi-pronged strategy for the world's top Internet market.

Google sent shockwaves across the business and political worlds when it declared on Jan. 12 it would stop censoring Chinese search results. But in the three weeks since, the Web giant has trod cautiously. Despite early reports suggesting Google had lifted filters on certain search results, the company insists it has made zero changes to its Chinese search engine and that it remains in dialogue with Beijing. Otherwise, executives have mostly been tight-lipped about the entire affair.

That guarded, restrained approach reflects the thorny legal issues surrounding the situation and the high stakes involved in its standoff with China, the world's No. 3 economy and largest Internet market by users. Many analysts believe the Chinese government would have no qualms shutting down an uncensored search engine. But experts on Chinese law warn that Google employees in China could also face prosecution for breaking the law. China's detention of four Rio Tinto employees including Australian Stern Hu in July on accusations of illegally obtaining commercial secrets amid contentious iron ore contract negotiations has underscored the risk when business matters cross into politically sensitive areas. “If they have a lot of personnel in China and they suddenly decide to change what they're doing in a way that was not permitted by the Chinese government, then that could lead to problems,” said Donald Clarke, a professor of Chinese law at George Washington University Law School, noting Google staff could be at risk of everything from arrest to harassment. And with political momentum building – U.S. Secretary of State Hillary Clinton and the U.S. Senate have voiced strong support for freedom of expression on the Internet – Google has room to sit back and let others advance its cause. “As long as individual actors, even ones as large as Google, are doing this alone as opposed to collectively, then these risks are going to be much more pronounced,” said Arvind Ganesan, director of business at Human Rights Watch.

A sudden move by Google to lift search censorship in China could hurt other business interests in the country, including its fast-growing Android cell phone products, advertising sales and its research and development operations. “Both parties probably want to reach some sort of a solution, so I think both have been careful in their public statements,” UBS analyst Brian Pitz. Websites in China are prohibited from publishing content that jeopardizes the security of the nation, divulges state secrets and disturbs the social order. “It would be normal for anybody running a high-profile, politically controversial operation in China to anticipate worst-case scenarios, and to do everything possible to guard against them,” said Rebecca MacKinnon, a fellow at the Open Society Institute who has written extensively about Internet censorship in China.

Google is therefore more likely to voluntarily shut down its search operation if it is unable to reach a compromise with China, rather than unilaterally lift censorship, she said. Google CEO Eric Schmidt said last month the company was still censoring search results in China, but that it would be making changes in a “reasonably short time.” He added that Google was committed to having some presence in China. The company does not disclose the size of its business in China, where it has several hundred employees and is the No. 2 search engine after Baidu Inc. Analysts estimate it generates $200 million to $600 million a year in revenue. While many experts believe Beijing is unlikely to let Google operate an uncensored website, some say last summer's “Green Dam” software episode could offer a lesson for the company as it looks for a way forward. Beijing backed down from a controversial plan that would have required personal computer makers to install special Internet filtering software on PCs in the face of opposition from industry groups, activists and Washington officials such as U.S. Trade Representative Ron Kirk and Commerce Secretary Gary Locke. “What you saw is a pretty much global pushback on what were pretty onerous and odious regulations on the part of the government. And guess what? As of today, there is no requirement” to install filtering software, said Ganesan of Human Rights Watch.

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