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Baidu Steadies as Google Rethinks China

An earlier version of this story incorrectly reported that China represented about 7.5% of Google's revenue last year. The estimate is closer to 1%.

MOUNTAIN VIEW, Calif. ( TheStreet) -- Hacked, censored and violated in China, Google (GOOG - Get Report) has cried foul and threatened to leave the country if discussions with government officials don't improve the conditions there.

"We detected a highly sophisticated and targeted attack on our corporate infrastructure originating from China," Google's chief attorney Dave Drummond said in a blog post Tuesday. The aim of the attack, Drummond noted, was the Gmail accounts of two human rights advocates in China.
Google China

In response, Google said it would "review the feasibility of our business operations in China."

The potential exit of China's No. 2 Internet search service sent shares of market leader Baidu (BIDU - Get Report) up more than 13% Wednesday. Baidu shares were up 0.5% in premarket trading Thursday.

Baidu has 64% of the country's search marketshare, leaving Google's China site with about 31%. And while an exit from China would certainly bolster Baidu's hold on the market, it would not be immediately devastating to Google's financial picture.

China represents just under 1% of Google's net sales, according to analysts' 2009 estimates. Given the size and rapid growth of China's Internet market, that portion is expected to grow to in the coming years.

Google has been operating in China for four years. With more than 300 million Internet users today and millions more expected to sign on, China represents the largest growth region for Google's search-advertising business.

The move comes as PC maker Dell (DELL) plans its entry into China's wireless market with a Google Android phone this year. For Google and Dell, this is a huge moment that puts both companies on the verge of cracking China's vast mobile market.
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