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Baidu to Gain From Google's China Loss: Poll

When we asked readers of TheStreet who they thought would be the winner of Google's clash with China, the verdict was neither Google nor China ... but Baidu.
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) -- Last week, we asked readers of


who they think will be the biggest winner of Google's (GOOG) - Get Alphabet Inc. Class C Report clash with the Chinese governmentd

over censorship rules and its subsequent exit from China to Hong Kong -- Google,


(BIDU) - Get Baidu Inc. Report

or the Chinese government?

A surprisingly strong majority, 63.4%, said that with its main domestic rival out of the way, Baidu would be the obvious winner.

A smaller, but still substantial number, 25.7%, said that Google's principled stand will pay off in the long-run.

Meanwhile, 10.9% of respondents said that the Chinese government would emerge the biggest winner -- on the notion, as we phrased it in the survey, that Google would eventually cave to the Chinese government and, in doing so, would bolster the perception of China's power.

A significant concern for Google investors is that the company's decision to redirect its mainland China traffic to Hong Kong could backfire in the form of Chinese Internet firewalls. Those concerns were aroused on March 30 when mainland Chinese users couldn't carry out searches on Google's Hong Kong-based internet search engine -- although, by week's end, traffic seemed to have returned to normal.

Google blamed China's internet firewall for Tuesday's problems, but it remained unclear whether the cause was a technical malfunction or Chinese response to Google's move out of China.

In a note to investors April 1, analysts at securities firm

Piper Jaffray

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said they believe Google lost some advertisers in China as it was deciding whether to stay in the country. Thus, "in 2010, we estimate that 20% of Google's China's business is at risk due to loss of advertisers," Piper Jaffray analyst Gene Munster wrote.

When advertisers couldn't get a definitive answer on Google's future plans in China, while planning out their annual budgets following the Chinese new year, some ended their contracts with the company, Muster explained.

Another concerning factor for Piper Jaffray analysts is Google's long-term loss in China's wireless market. Already, major mobile operator

China Unicom

(CHU) - Get China Unicom (Hong Kong) Ltd. Report

has announced that it would pull Google's search function from the new Android handsets that it worked on with Google, saying that it's willing to work with any company that abides by Chinese law. "We expect

China Mobile

(CHL) - Get China Mobile Ltd. Report

will likely drop Google as the default search provider on its Android phones as well," Munster commented.

On a more positive note for Google, Munster notes that Google's decision to move to Hong Kong rather than pull out of China completely represents a better scenario than the latter, which was expected by many investors. Furthermore, he believes that his aforementioned 20% scenario "would be a positive for shares of Google, given investors are expecting Google's business in China to decline by more than 20%."


Goldman Sachs

analysts, who raised Baidu's price target after

Google's decision to depart from China

, said they believe the most essential factor determining Baidu's stock price is its success in capturing revenue from Goldman Sachs forecasts Baidu capturing about 50% of's prior revenue from late 2010 and beyond.

-- Reported by Andrea Tse in New York


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