Google’s China Gambit
Jan 14, 2010
Posted by Jody Eisenman | Filed under Uncategorized
The country of China, also known as the People’s Republic of China or PRC, has a population of over 1.3 billion people, or about five times the population in the United States. As such, when China began to embrace some capitalistic ideals, companies all over the world flocked there to do business. Although the income levels there do not match those in the US, the allure of doing business in a relatively virgin market appealed to companies who have made their living selling to the mature US and European markets. Google was no exception. They currently are the most popular search engine here, and have about 2/3 of the entire market. They decided to enter the Chinese market about three years ago. Now, in order to enter this market, Google had to agree to Chinese censorship; the Chinese are basically somewhere between democracy and communism, and still maintain a lot more control over their population than we do. China does allow its’ citizens to view certain websites which are deemed to be “problematic”. For example, a Google search for “Tiananmen Square Massacre” will not return any search results. Although Google agreed to this censorship, they were not pleased about it, as it struck to the heart of a free and open society which the company believes in. However, for business reasons, the company lived with a policy that went against their basic principles. That is, until yesterday.
Google surprisingly announced that they would no longer agree to Chinese censorship. If Google is serious about this, it would seem likely that the Chinese will effectively ban them. As a result, the big yesterday was Baidu (BIDU), who is China’s second largest search engine. Baidu jumped over 50 points yesterday in investors’ anticipation of the company reaping the benefits of Google’s apparent demise there. There are some analysts who think that Baidu could soar even further if China does ban Google. However, I would caution investors that as a foreign entity, Baidu does not report financials through the Securities and Exchange Commission website (www.sec.gov). Therefore, it is difficult to assess the actual value of this company in terms of standard investment metrics. It should be interesting to see what happens going forward.
